RoverPlus, a pet product superstore, is considering pricing a new Rover Plus-lab
ID: 2674592 • Letter: R
Question
RoverPlus, a pet product superstore, is considering pricing a new Rover Plus-labeled dog food. The companiae will buy the premium dog food from
a company inIndianna that packs the products with RoverPlus label, rover pays $7 for a 50 pound bag delivered to it's store.
The company also sells Royal dog-food (under Royal Dog-food label), which it purchases for $10 per 50 pound bag and sells for $17.99.
The companay currently sells 26,000 bags of Royal Dog Food per month, but that is expected to change when the Roll Over Plus brand is introduced.
The company will continue to price the royal Dog food Brand at $17.99. The quantity of RoverPlus and the quantity of royal Dog Food that will be
sold at various Prices for Royal are estimated as:
Price Quantity Quantity
RoverPlus RoverPlus Royal
$7.99 36,000 12,000
$8.99 35,500 12,300
$9.99 35,000 12,500
$10.99 34,000 13,000
$11.99 31,000 14,000
$12.99 26,000 15,000
$13.99 16,000 16,000
$14.99 11,000 20,000
$15.99 6,000 22,000
For example, if RoverPlus is priced at $7.99, the company qill sell 36,000 bags of RoverPlus and 12,000 bags of Royal at $17.99. If the company prices
RoverPlus and 22,000 bags of Royal at $17.99. This is 4,000 fewer bags of Royal than is currently being sold.
REQUIRED:
a. Calculate the profit-maximizing price for the RoverPlus brand, taking into account the effect of the sles of RoverPlus on sles of Royal Dog Food Brand.
b. At that price calculate in part a, what is the incremental profit over the profit earned beforethe introduction of the RoverPlus-branded dog food?
Explanation / Answer
a)The profit maximizing price for RoverPlus is 12.99, at which the company makes 26,000(12.99-7) + 15,000(17.99-10)= $275,590.
b) Before introduction of RoverPlus, the company made 26,000(17.99-10)= $207,740 so the incremental profit is $275,590- $207,740= $67,850.
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