MGCR352MARKETINGMANAGEMENT1
QUANTITATIVEANALYSISNOTES
1. Market Share
(a) Calculating Market Share
(b) Estimating the Size of a Market (Step Down Analysis)
2. Types of Costs and Margins
(a) Fixed and Variable Costs
(b) Contribution and Profit Margins
3. Breakeven Analysis
(a) In units and dollars
(b) Using breakeven analysis strategically
4. Price Elasticity
(a) For a single product
(b) Cross price elasticity between two products.
5. Price Chains
1. MarketShare(MS)
Market share is the percent of the total market (expressed in units or dollars) that your brand or
product controls.
MS $
Yourbrand$sales
Totalsegment$sales
MS
Yourbrand
Totalsegment
sales
sales
Not all brands in a segment are sold at the same price, therefore the answer to these two market
share calculations may differ.
Estimating Market Size - The Step Down Approach
Suppose we want to know our market share of the price sensitive segment of liquid laundry
detergent in Montreal.
Suppose we know that our brand has $365,000 in sales and that the total Canadian market of
all laundry detergent is $217,500,000.
What information do we need to know to calculate our particular market share of just the liquid
detergent segment just in Montreal?
Mgcr352 quantitative analysis - 1 of 30
1. Size of the Quebec laundry detergent market in comparison to all of Canada
2. Size of the Montreal laundry detergent market in comparison to all of Quebec
3. Size of the Price Sensitive segment of consumers in Montreal
4. Size of the Liquid (as opposed to Powder) Detergent sales in Montreal
21%
48%
20%
45%
Total Detergent Sales in Quebec:
0.21 $217,500,000 $ ,
,
Total Detergent Sales in Montreal:
0.48 $45,675,000 $ ,
,
Total Price Sensitive Detergent Segment Sales in Montreal:
0.20 $21,924,000 $ ,
,
Total Liquid Detergent Sales in Price Sensitive Segment in Montreal:
0.45 $4,384,800 $ ,
,
MS $
$365,000
$1,973,160
. %
2. TypesofCostsandMargins
1. Fixed Costs (FC) do not fluctuate with changes in volume of production (i.e. advertising,
public relations, fixed salaries, administration and overhead, rent, research and
development…).
2. Variable Costs (VC) are directly associated with volume of production (i.e. labour,
materials, transportation, promotion costs such as allowances, coupons, …).
3. Contribution Margin (CM) represents how much is left over after accounting for the
variable costs to cover fixed expenses. Contribution Margin % tells you what % of each
$ you earn goes towards covering fixed expenses.
CM unit
SP unit
VC unit
CM unitasa%
SP unit
VC unit
SP Unit
*SP stands for Selling Price
4. Profit Contribution (PC) represents how much is left over after accounting for all costs
(fixed and variable).
Note that: 100% = VC (% of Sales or Price) + CM (% of Sales or Price)
In other words:
Unit SP
- Unit VC
Per Unit Contribution (CM)
- Per Unit Fixed Costs
Per Unit Profit Margin (PC or PM)
Mgcr352 quantitative analysis - 2 of 30
3. Breakeven(BE)Analysis
BE Units
BE $
TotalFC
SP unit
VC unit TotalFC
SP unit
VC unit
SP unit
BE $
TotalFC
VC unit
1 SP unit
For example, consider a microbrewery that wants to enter the Quebec market. Total unit sales of
micro beer in Quebec = 7,000,000 bottles per year. Per unit VC for this microbrewery is $0.85
per bottle.
Strategy 1: Heavy advertising in order to try and sell at a higher per unit price.
Advertising = $500,000
Price = $3.00 per bottle
Strategy 2: Lower advertising, and therefore sell at a lower price per unit.
Advertising = $200,000
Price = $2.25 per bottle
Which strategy is best according to a breakeven analysis?
Strategy 1: BE Units
$500,000
$3.00‐$0.85
Strategy 2: BE Units
$
$ .
232,558unitsor3.3%ofthemarket
,
$ .
,
or %ofthemarket
The marketer would then determine how much of the market they can realistically capture and
compare this to their breakeven analysis. Suppose it is determined that they can only capture 2%
of the market. What price do they have to sell their beer for in order to make the $500,000
advertising strategy pay off?
BE Units
$500,000
$0.85
140,000
$ .
Mgcr352 quantitative analysis - 3 of 30
4. PriceElasticity(PE)
Price Elasticity (PE) measures how responsive demand would be to a change in price.
PE
%changeinDemand
%changeinSP
Where%change
New Old
Old
Going back to the microbrewery example, suppose:
 ...at $2.25 per bottle, they’ll sell 300,000 bottles.
 ...at $4.42 per bottle, they’ll sell 140,000 bottles.
%∆inDemand
%∆inSP
PE
1.14
0.49
300,000 140,000
140,000
$2.25 $4.42
$4.42
.
.
%
%
.
If absolute PE < 1, the product is said to be price inelastic.
Here, a decrease in price yields a less than proportional increase in demand and an increase in
price yields a less than proportional decrease in demand.
Generally, lowering price  a decrease in profits;
raising price  increase in profits.
If absolute PE > 1, the product is said to be price elastic.
Here, a decrease in price yields a greater than proportional increase in demand and an increase in
price yields a greater than proportional decrease in demand.
Generally, lowering price  increase in profit;
raising price  decrease in profit.
If absolute PE = 1, the product is said to be unit elastic.
Here, an increase or decrease in price yields the same change in demand.
5. Cross‐PriceElasticity(CPE)
Cross-Price Elasticity (CPE) examines the relationship between changing the price of one
product and measuring the effect on the demand of a second product.
With complementary products, raising the price of one will yield a decrease in demand in the
other (e.g., hockey sticks and pucks; hamburgers and French fries, bread and cheese).
Mgcr352 quantitative analysis - 4 of 30
With substitute products, raising the price in one product will lead to an increase in demand for
the other (e.g., cassette and CD players, butter and margarine, tea and coffee).
Suppose that butter is promoted and its price is dropped from $3.09 to $2.79. Moreover, suppose
that this yields an increase in demand for bread from 4,000 loaves to 6,300 loaves.
$2.79 $3.09
$3.09
%∆inButterPrice
6,300 4,000
4,000
%∆inBreadDemand
CPE
0.58
0.10
.
. .
6. PriceChains
1 CM%onSP
SP unit
VC unit
SP unit
2 Markup%onCost
SP unit
VC unit
VC unit
:
VC unit
100% CM%onSP
SP
%
:
SP VC unit Markup%onCost VC unit
Mgcr352 quantitative analysis - 5 of 30
Basicquantitativeanalysisinmarketing–Exercises
MarketShare(MS)
1. Last year Warner-Lambert sold 14 million superpacks of Trident. The average retail price
per pack was $1.69. In 1996, the chewing gum market racked up $850 million in retail
sales.
(a) Calculate Warner-Lambert’s share of the chewing gum market.
(b) Warner-Lambert targets the frequent gum chewers with their superpack that contains 16
pieces of gum. Assuming frequent gum chewers make up 28% of the chewing gum
market, calculate Trident’s new market share.
2. Use the following information to answer questions a-e:
Total coffee sales for 1996 = $800.5 million
Maxwell House’s 1996 coffee sales = $105 million
Folgers’ 1996 coffee sales = $21 million
(a) What is Maxwell’s share of the market?
(b) What is Folgers’ share of the market?
Mgcr352 quantitative analysis - 6 of 30
Suppose there are two unique segments in the coffee market: percolated coffee drinkers and
instant coffee drinkers. Percolated coffee drinkers make up 86.5% of the coffee market and
instant coffee drinkers 13.5%.
(c) Assuming Maxwell House targets percolated coffee drinkers, calculate the target market
share.
(d) Assume Folgers’ coffee is targeted at instant coffee drinkers, calculate the target market
share.
(e) Discuss the meaning of the figures you just calculated: who has stronger market share in
terms of total market and segmented market?
ContributionMargins(CM)
3. (a) What is the meaning of contribution margin? What is the difference between
contribution margin expressed in terms of % sales vs. % selling price?
Mgcr352 quantitative analysis - 7 of 30
(b) Can the terms “contribution margin” and “profit margin” be used interchangeably? Why
or why not?
(c) Fly-a-kite Canada carries a 35 item product line. Their newest addition was the Batman
kite, which they sold at $26.75 (to distributors). Variable cost per kite is $8.09. Assuming
they sold 110,500 kites in 1996, calculate contribution margin as a percentage of sales
and selling price.
(d) Refer to question c. Fly-a-kite hired 50 kite experts to build the Batman kites and paid
them each a $40,000 salary for 1996. Since experts needed special tools to build these
Batman kites, Fly-a-kite spent $70,000 on new machinery and equipment. Calculate the
profit margin in dollars and as a percentage of sales.
Mgcr352 quantitative analysis - 8 of 30
4. TrueWax Company sells their scented candles to wholesalers for $5.89 each. If variable
costs amount to $2.83 per candle, what is the unit contribution margin in dollars and as a
percentage of selling price?
5. Use the following information to calculate total contribution margin as dollars and as a
percentage of total sales.
Total candle sales for 1996 = $798,500
Total variable costs for 1996 = $383,660
6. Compare contribution margin as a percentage of selling price (Q4) and contribution
margin as a percentage of total sales (Q5). Discuss the discrepancies or similarities.
Mgcr352 quantitative analysis - 9 of 30
Breakeven(BE)Analysis
7. (a) Heinz sells their 400ml bottle of ketchup for $2.99 per bottle. Variable costs per unit
is $1.85. Fixed production and distribution expenses amount to $10.6 million. Calculate
break-even in units and required break-even dollar sales.
(b) Assume the total Canadian market for ketchup is $375 million. Calculate Heinz’s breakeven market share.
8. Jack’s Key shop is going through a rough period in terms of business. For the past 2 years
Jack’s corner store has been experiencing a decrease in demand. For 1998, Jack would
like to know how many keys he needs to sell to break-even. Use the following
information to help Jack.
Average selling price per key = $3.89
Cost per blank key = $1.75
Labour cost per key = 2% of selling price
Rent and utilities = $4,500
Advertising = $2,500
Other miscellaneous expenses = $5,000
It is October 1st, 1997 and Jack has sold 1,859 keys. What do you recommend Jack do?
Mgcr352 quantitative analysis - 10 of 30
9. Use the following information from firm ‘C’ to answer questions a-d.
Average price for existing beer fridge = $480
Tentative price for new beer fridge with freezer = $595
Expenses incurred for new product:
Raw material expenses = $196.46
Labour expenses = $120.00
Transport expenses = 4% of sales
Variable promotional expenses = 6% of sales
Rent for new plant = $96,000
Allocated overhead = $890,000
Advertising = $2,950,000
Other fixed expenses = $602,000
Competitive environment:
General Electric dominates 30% of the market
Kenmore owns 24% of the market
Total refrigerator sales in Canada = $510,400,000
Segmentation:
Beer fridge segment is 15% of refrigerator market
46% of beer fridge segment prefers beer fridges with freezers
Other important information:
The market for refrigerators is expected to remain stable in the next couple of
years.
(a) Calculate Firm C’s break-even point for its new fridge with freezer in units and dollars.
(b) Calculate Firm C’s required break-even market share for its new fridge with freezer.
Mgcr352 quantitative analysis - 11 of 30
(c) Is market share feasible? Why or why not?
(d) Suppose that the average price of a beer fridge with freezer, in Firm C’s target segment is
$620, and also suppose that the largest market that Firm C can hope to achieve is 20% of
segment sales. What is the lowest average price Firm C can charge for its beer fridge with
freezer and still break-even?
10. General Motors plans to launch a new car January 1, 2000. This new vehicle will be powered
by electric current. GM wants to minimize fixed costs, by choosing test markets rather than
providing for the complete North American launch. Financial analysis shows required breakeven market share to 15% above projected. Given this information, how can GM reduce market
share required to break-even?
Mgcr352 quantitative analysis - 12 of 30
PriceChains
11. Solve the following price chains:
(a)
Manufacturer’s Price
$15.55
Manufacturer’s VC
$6.35
Manufacturer’s $$ Margin
Manufacturer’s %% Margin
Wholesaler’s Price
$22.21
Wholesaler’s VC
Wholesaler’s $$ Margin
Wholesaler’s %% Margin
Distributor’s Price
Distributor’s COGS
Distributor’s $$ Margin
Distributor’s %% Margin
12%
Retail Price
Retail COGS
Retail $$ Margin
Retail %% Margin
25%
Mgcr352 quantitative analysis - 13 of 30
(b)
Manufacturer’s Price
$80.15
Manufacturer’s VC
$45.20
Manufacturer’s $$ Margin
Manufacturer’s %% Margin
Wholesaler’s Price
Wholesaler’s VC
Wholesaler’s $$ Margin
Wholesaler’s %% Margin
12%
Distributor’s Price
Distributor’s COGS
Distributor’s $$ Margin
Distributor’s %% Margin
15%
Retail Price
Retail COGS
Retail $$ Margin
Retail %% Margin
20%
Mgcr352 quantitative analysis - 14 of 30
(c)
Manufacturer’s Price
Manufacturer’s VC
Manufacturer’s $$ Margin
$10.00
Manufacturer’s %% Margin
50%
Wholesaler’s Price
Wholesaler’s VC
Wholesaler’s $$ Margin
Wholesaler’s %% Margin
9%
Retail Price
Retail COGS
Retail $$ Margin
Retail %% Margin
45%
Mgcr352 quantitative analysis - 15 of 30
(d)
Manufacturer’s Price
$360.00
Manufacturer’s VC
$110.00
Manufacturer’s $$ Margin
Manufacturer’s %% Margin
Wholesaler’s Price
Wholesaler’s VC
Wholesaler’s $$ Margin
Wholesaler’s %% Margin
Retail Price
$533.33
Retail COGS
Retail $$ Margin
Retail %% Margin
25%
Mgcr352 quantitative analysis - 16 of 30
(e)
Manufacturer’s Price
$85.00
Manufacturer’s VC
Manufacturer’s $$ Margin
$36.00
Manufacturer’s %% Margin
Wholesaler’s Price
$115.00
Wholesaler’s VC
Wholesaler’s $$ Margin
Wholesaler’s %% Margin
Retail Price
$175.00
Retail COGS
Retail $$ Margin
Retail %% Margin
Mgcr352 quantitative analysis - 17 of 30
12. Now try solving one that’s inverted. If you can do this one, you’re all set!
Retail Price
$650.00
Retail COGS
Retail $$ Margin
Retail %% Margin
Wholesaler’s Price
$400.00
Wholesaler’s COGS
Wholesaler’s $$ Margin
Wholesaler’s %% Margin
Manufacturer’s Price
$310.00
Manufacturer’s VC
Manufacturer’s $$ Margin
$190.00
Manufacturer’s %% Margin
PriceElasticity(PE)
13. If the price elasticity of 1 liter of Gallo wine increases from $12.00 to $15.00, and
demand for wine in Quebec decreased from 68,000,000 bottles of wine sold per year to
65,000,000 bottles per year. Calculate price elasticity of wine, and explain your results.
Mgcr352 quantitative analysis - 18 of 30
14. Indicate if the following products are suitable for price promotion.
Product
Libby’s Beans
Picasso Painting
Clothing
Ancient Greek Vase
Cigarettes
Price Elasticity
1.04
3.65
4.75
0.98
0.88
15. Multiple Choice:
A. The price elasticity refers to a measure that shows the:
(a) responsiveness of quantity demanded of a good to changes in its price.
(b) variation in prices due to a change in demand.
(c) size of price changes caused by a shift in demand.
(d) degree of substitutability across commodities.
B. If the price elasticity for product A is -2 and price increases by 2%, the quantity
demanded:
(a) decreases by 4%
(b) increases by 1%
(c) decreases by 2%
(d) does not change
(e) is indeterminable with the data provided
C. If the percentage change in price is greater than the percentage change in quantity
demanded, product B is:
(a) elastic
(b) inelastic
(c) unit-elastic
(d) none of the above
Mgcr352 quantitative analysis - 19 of 30
D. If a 10% increase in the price of ski lift tickets causes a 5% decrease in demand, then ski
tickets are:
(a) elastic
(b) inelastic
(c) unit-elastic
(d) none of the above
16. Just a couple more… you’ll thank me. Calculate price elasticity for the following:
(a) Soft n’ Dry deodorant was featured in the drugstore circular. Regular price was
$3.49 and the special promoted price was $2.29. Sales increased from 300 units
per week, to 560 units per week.
(b) The price of Eggo’s increase by 30%. Demand fell from 15,000 units to 12,000
units.
(c) Demand for CD players increased by 55% when price was reduced from $650 to
$400.
Cross‐PriceElasticity(CPE)
17. Just one little multiple choice question…
Which of the following pairs of goods is likely to have a cross-elasticity that is positive?
(a) Hockey sticks and pucks
(b) Cassettes and CD players
(c) Hamburgers and French fries
(d) Bread and cheese
(e) Perfume and garden hoses
Normal Price
Sale Price
Regular demand
Sale demand
Demand w/promo on butter
Demand w/promo on bread
Demand w/promo on marg.
Butter
$3.09
$2.79
800
1,200
N/A
1,000
400
Bread
$1.89
$1.29
4,000
7,000
6,300
N/A
6,000
Margarine
$1.99
$1.19
1,000
1,600
500
1,100
N/A
Mgcr352 quantitative analysis - 20 of 30
Use the above table to answer questions 18-20.
18. Calculate cross-price elasticity between bread and butter when butter is promoted.
19. Calculate cross-price elasticity between butter and margarine when butter is promoted.
20. Calculate cross-price elasticity between bread and margarine when bread is promoted.
Mgcr352 quantitative analysis - 21 of 30
BASICQUANTITATIVEANALYSISSOLUTIONSET
1.
(a)
(b)
,
,
$
,
$
$ .
,
,
,
2.78%
,
$ .
,
.
2.
(a) $105,000,000
(b) $21,000,000
(c) . 865
9.94%
$800,500,000
$800,500,000
$800,500,000
$105,000,000
13.12%
2.62%
$692,430,000
692,430,000
0.15
15%
d .135 800.5M $108,067,500
$21,000,000 $108,067,500 0.1943or19.43%
(e) While Firm A is probably larger, both firms have sound positions within their respective
segments.
3. (a) Contribution margin (CM) tells you how much is ‘left over’ after accounting for VC, to
cover fixed costs and profit.
CM %onSP SP VC /SP allperunit CM %onSales TotalSales–TotalVC /TotalSales allpertotalsales CM unit SP–VC
(b) Absolutely NOT! A contribution margin, as stated before, is what is left over after having
accounted for the VC to cover your FC (CM = SP – VC). On the other hand, PM is what is left
after having accounted for both VC and FC (PM = SP – VC – FC).
CM SP–VC allperunit orTotalCM TotalSales–TotalVC
PM SP–VC–FC allperunit orTotalPM TotalSales–TotalVC–TotalFC
(c) CM% Sales = ([$26.75 - $8.09]*110,500)/($26.75*110,500) = 69.76%
CM% S.P. = ($26.75 - $8.09)/$26.75 = 69.76%
Mgcr352 quantitative analysis - 22 of 30
(d) Salaries => 50*$40,000 =
Equipment =>
Total FC
PM$ = ([$26.75 $8.09]*110,500)
$2,000,000
$70,000
$2,070,000
$2,070,000 = $-8,070
PM% = -$8,070/($26.75*110,500) = -0.2%
*firm loses 0.2% on each unit sold
4. CM$ = $5.89 – $2.83 = $3.06
CM% = ($5.89 – $2.83)/$5.89 = 51.95%
5. TCM$ = 798,500 – 383,660 = $414,840
TCM% = $414,840/798,500 = 51.95%
6. – same product line
- assuming no VC changes during the year
- difference – TCM is CM unit * # of units sold
7. (a) CM$ = $2.99 – $1.85 = $1.14
CM% = $1.14/$2.99 = 38.13%
BE units = $10,600,00/$1.14 = 9,298,246 units
BE $ = $10,600,000/0.3813 = $27,799,632
To check: BE units * SP per unit
(b) BE MS = $27,799,632/$375,000,000 = 7.41%
8.
SP = $3.89
Mgcr352 quantitative analysis - 23 of 30
VC = $1.75 + (0.02*$3.89) = $1.83
FC = $4,500 + $2,500 + $5,000 = $12,000
CM$ = $3.89 - $1.83 = $2.06
BE units = 12,000/2.06 = 5,826 units
Since Jack is only 1/3 of the way there, and he only has 3 months left of the year… it’s obvious
he should consider closing shop.
9.
(a)
1. Calculate total VC
Raw material
Labour
Trans (595*.04)
Promo (595*.06)
TVC
= $196.46
= $120.00
= $ 23.80
= $ 35.70
= $375.96
2. Calculate total FC
Rent
O/H
Advertising
Other FC
TFC
= $ 96,000
= $890,000
= $2,950,000
= $602,000
= $4,538,000
3. CM$ = $595 – $375.96 = $219.04
CM% = 219.04/595 = 36.81%
4. BE units = $4,538,000/$219.04 = 20,718
BE$ = $4,538,000/0.3681 = $12,328,171
Mgcr352 quantitative analysis - 24 of 30
(b)
Total Beer Fridge market = $510,400,000*0.15 = $76, 560,000
Beer Fridge w/ freezer market = $76,560,000*0.46 = $35,217,600
New BE MS = $12,328,171/$35,217,600 = 35%
(c) For: 35% is not impossible if you look at other market leaders, but you are launching a
product (remember what that implies).
Against (stronger argument): might be high because big guys own over 50% of the market.
(d)
BE new = 0.20*$35,217,600 = $7,043,520
Solve: $7,043,520 = $4,538,000/([SP– $196.46 - $120 - 0.04SP - 0.06SP]/SP)
$7,043,520 = $4,538,000/([0.9SP – 316.46]/SP)
$7,043,520(0.9 – [$316.46/SP]) = $4,538,000
$6,339,168 – (2,228,992,339.2/SP) = $4,538,000
$6,339,168 - $4,538,000 = $2,228,993,339.2/SP
$1,801,168SP = $2,228,993,339.2
SP = $1,237.53
10.
decrease FC (advertising, salaries, general and administrative expenses)
increase SP
decrease VC
increase scope of launch (increase market size)
target more than one segment
Analyze
BE MS = BE sales$/Total Sales (market)
BE units = FC/ CM$ (SP–VC)
BE $ = FC/([SP–VC]/SP)
Mgcr352 quantitative analysis - 25 of 30
11. Solve the following price chains:
(a)
Manufacturer’s Price
Manufacturer’s VC
Manufacturer’s $$ Margin
Manufacturer’s %% Margin
Wholesaler’s Price
Wholesaler’s VC
Wholesaler’s $$ Margin
Wholesaler’s %% Margin
Distributor’s Price
Distributor’s COGS
Distributor’s $$ Margin
Distributor’s %% Margin
Retail Price
Retail COGS
Retail $$ Margin
Retail %% Margin
$15.55
$6.35
$9.20
59% (9.2/15.55)
$22.21
$15.55
$6.66
30%
$25.24
$22.21
$3.03
12%
$33.65
$25.24
$8.41
25%
(b)
Manufacturer’s Price
Manufacturer’s VC
Manufacturer’s $$ Margin
Manufacturer’s %% Margin
Wholesaler’s Price
Wholesaler’s VC
Wholesaler’s $$ Margin
Wholesaler’s %% Margin
Distributor’s Price
Distributor’s COGS
Distributor’s $$ Margin
Distributor’s %% Margin
Retail Price
Retail COGS
Retail $$ Margin
Retail %% Margin
$80.15
$45.20
$34.95
44%
$91.08
$80.15
$10.93
12%
$107.15
$91.08
$16.07
15%
$133.94
$107.15
$26.79
20%
Mgcr352 quantitative analysis - 26 of 30
(c)
Manufacturer’s Price
Manufacturer’s VC
Manufacturer’s $$ Margin
Manufacturer’s %% Margin
Wholesaler’s Price
Wholesaler’s VC
Wholesaler’s $$ Margin
Wholesaler’s %% Margin
Retail Price
Retail COGS
Retail $$ Margin
Retail %% Margin
$20.00
$10.00
$10.00
50%
$21.98
$20.00
$1.98
9%
$39.96
$21.98
$17.98
45%
(d)
Manufacturer’s Price
Manufacturer’s VC
Manufacturer’s $$ Margin
Manufacturer’s %% Margin
Wholesaler’s Price
Wholesaler’s VC
Wholesaler’s $$ Margin
Wholesaler’s %% Margin
Retail Price
Retail COGS
Retail $$ Margin
Retail %% Margin
$360.00
$110.00
$250.00
69%
$400.00
$360.00
$40.00
10%
$533.33
$400.00
$133.33
25%
(e)
Manufacturer’s Price
Manufacturer’s VC
Manufacturer’s $$ Margin
Manufacturer’s %% Margin
Wholesaler’s Price
Wholesaler’s VC
Wholesaler’s $$ Margin
Wholesaler’s %% Margin
Retail Price
Retail COGS
Retail $$ Margin
Retail %% Margin
$85.00
$49.00 (85-36)
$36.00
42%
$115.00
$85.00
$30.00
26%
$175.00
$115.00
$60.00
34%
Mgcr352 quantitative analysis - 27 of 30
12. Now try solving one that’s inverted. If you can do this one, you’re all set!
Retail Price
$650.00
Retail COGS
$400.00
Retail $$ Margin
$250.00
Retail %% Margin
38%
Wholesaler’s Price
$400.00
Wholesaler’s COGS
$310.00
Wholesaler’s $$ Margin
$90.00
Wholesaler’s %% Margin
23%
Manufacturer’s Price
$310.00
Manufacturer’s VC
$120.00 (310-190)
Manufacturer’s $$ Margin
$190.00
Manufacturer’s %% Margin
61%
13.
% change D = (65M–68M)/68M = (-3M)/68M = -4.41%
% change SP = ($15–$12)/$12 = 3/12 = 25%
PE = (-0.041)/0.25 = |-0.1764| < 1
Therefore, price inelastic for increase or decrease in price.
14.
Libby’s Beans
– YES (price decrease, demand increase)
Picasso Painting
– NO (price decrease, demand decrease)
Clothing
- YES (price decrease, demand increase)
Ancient Greek vase
- NO (price decrease, demand decrease)
Cigarettes
- NO (inelastic product)
Mgcr352 quantitative analysis - 28 of 30
15.
A) a
B) a
|PE| = |-2| = change in D%/ change in SP% = (-4%)/2% = |-2%| = 2
C) b
Example: % change D/ % change SP = 2%/15% = 0.133 < 1
Therefore, price is inelastic.
D) b
change %D/ change %SP = (-.05)/.1 = |-0.5| = 0.5 < 1
Therefore, price is inelastic.
16.
(a) % change D = (560-300)/300 = +0.87
% change SP = (2.29-3.49)/3.49 = -0.34
+0.87/(-0.34) = |-2.56| > 1
Therefore, price is elastic.
(b) % change D = (12,000 – 15,000)/15,000 = -0.2
% change SP = +0.3
(-0.2)/+0.3 = |-0.67| < 1
Therefore, price is inelastic.
(c) % change D = +0.55
% change SP = (400 – 650)/650 = -0.38
+0.55/(-0.38) = |-1.45| > 1
Therefore, price is elastic.
17.
Answer: b
Hockey sticks and pucks
Cassettes and CD players
Hamburgers and French fries
Bread and cheese
Perfume and garden hoses
= complements
= substitutes
= complements
= complements
= unrelated
Mgcr352 quantitative analysis - 29 of 30
18.
Butter % change SP = (2.79-3.09)/3.09 = -0.10
Bread % change D = (6,300 – 4,000)/4,000 = +0.58
+0.58/(-0.10) = -5.80 - negative, therefore complements
19.
Butter % change SP = (2.79-3.09)/3.09 = -0.10
Margarine % change D = (500-1000)/1000 = -0.5
(-0.5)/(-0.1) = 5  positive, therefore substitutes
20.
% change SP = (1.29-1.89)/1.89 = -0.32
% change D = (1100-1000)/1000 = +0.1
+0.1/(-0.32) = |-0.3125|  negative below 1, therefore weak complements
Mgcr352 quantitative analysis - 30 of 30