2) Office Enterprises (OE) produces a line of metal office file cabinets. The co
ID: 1109485 • Letter: 2
Question
2) Office Enterprises (OE) produces a line of metal office file cabinets. The company’s economist, having investigated a large number of past data, has established the following equation of demand for these cabinets: Q = 10,000 + 60B – 100P + 50C where Q = Annual number of cabinets sold B = Index of nonresidential construction P = Average price per cabinet charged by OE C = Average price per cabinet charged by OE’s closest competitor It is expected that next year’s nonresidential construction index will stand at 160, OE’s average price will be $40, and the competitor’s average price will be $35. a) Forecast annual sales. b) What will be the new sales forecast if the competitor lowers its price to $32? c) What will be the new sales forecast if OE reacts to the decrease mentioned in the previous question by lowering its price to $37? (The competitor’s price will now be $32 and the firm’s own price will be $37.) d) If the index forecast was wrong, and it turns out to be only 140 next year, what will be OE’s projected sales assuming the original price information of P = $40 and C = $35?
Explanation / Answer
Demand forecast: Q = 10000 + 60B - 100P + 50C
a) B = 160 , P = 40 and C = 35
Q = 10000 + 60 x 160 - 100 x 40 + 50 x 35
Annual sales (forecast) = 17350 units
b) C = 32, P = 40 and B = 160
Q = 10000 + 60 x 160 - 100 x 40 + 50 x 32
Annual sales (forecast) = 17200 units
c) P = 37, C = 32 and B = 160
Q = 10000 + 60 x 160 - 100 x 37 + 50 x 32
Annual sales (forecast) = 17500 units
d) B = 140, P = 40 and C = 35
Q = 10000 + 60 x 140 - 100 x 40 + 50 x 35
Annual sales (forecast) = 16150 units
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.