35) A General Motors executive is considering how to price the 2013 Chevy Volt e

Question

35) A General Motors executive is considering how to price the 2013 Chevy Volt electric car in order to maximize profits for the company. Manufacturing each Volt involves $9,500 of materials, $12,500 of labor, $3,800 of shipping, and $4,000 of other supplies. The Detroit facility where the Volt is manufactured has $12.5 million of fixed costs. The marketing department says that adding a Bose sound system would boost demand, but it would cost an additional $750 per unit.
The quantity demanded at each per unit price is as follows:
Quantity Quantity
Demanded Demanded
Price (No Bose) (With Bose)
$29,000 14,000 16,800
$30,000 11,200 13,440
$31,000 8,960 10,752
$32,000 7,168 8,602
$33,000 5,734 6,881
$34,000 4,588 5,505
$35,000 3,670 4,404
$36,000 2,936 3,523
$37,000 2,349 2,819
$38,000 1,879 2,255
$39,000 1,503 1,804
$40,000 1,203 1,443
What profit-maximizing strategy should she choose?
A) $34,000 price without Bose sound system.
B) $40,000 price with Bose sound system.
C) $35,000 price with Bose sound system.
D) $32,000 price without Bose sound system.

Explanation / Answer

Manufacturing cost without boss = $9,500 of materials, $12,500 of labor, $3,800 of shipping, and $4,000 of other supplies = 29800
Manufacturing cost with Boss = 29800 + 750 = 30550

profit maximizes at 35000 price with boss.

answer is C

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Price Units without Bose Units With Bose Fixedn Cost Variable without boss Variable with boss Profit without Boss Profit With boss $29,000 14,000 16,800 12500000 417200000 513240000 ($23,700,000) ($38,540,000) $30,000 11,200 13,440 12500001 333760000 410592000 ($10,260,001) ($19,892,001) $31,000 8,960 10,752 12500002 267008000 328473600 ($1,748,002) ($7,661,602) $32,000 7,168 8,602 12500003 213606400 262791100 $3,269,597 ($27,103) $33,000 5,734 6,881 12500004 170873200 210214550 $5,848,796 $4,358,446 $34,000 4,588 5,505 12500005 136722400 168177750 $6,769,595 $6,492,245 $35,000 3,670 4,404 12500006 109366000 134542200 $6,583,994 $7,097,794 $36,000 2,936 3,523 12500007 87492800 107627650 $5,703,193 $6,700,343 $37,000 2,349 2,819 12500008 70000200 86120450 $4,412,792 $5,682,542 $38,000 1,879 2,255 12500009 55994200 68890250 $2,907,791 $4,299,741 $39,000 1,503 1,804 12500010 44789400 55112200 $1,327,590 $2,743,790 $40,000 1,203 1,443 12500011 35849400 44083650 ($229,411) $1,136,339

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