Please answer in detail!!! Thanks in advance! Managerial Economics and Memo 4 To
ID: 1109324 • Letter: P
Question
Please answer in detail!!! Thanks in advance! Managerial Economics and Memo 4 To: Pricing Manager, Tri-State Region From: Regional Vice President, Tri-State Region Re: Revenue from EPIX As you are aware, we recently added the EPIX Movie Channels as part of a new tier of programming for our digital video subscribers. The EPIX channels are sold as an add-on package for $9.75 per month, but we would Ilike to potentially increase our contribution margin from our subscriber base. Currently we have 15,059 subscribers, generating monthly revenue of $146,823. our marketing department generated data on sales at various price levels. In addition, we have included the In an earlier study ing cost as well as regional expenses. Pleas e provide a recommendation of the profit-maximizing price, and how much our profits will increase if we adjust price to the recommended level. Also, please Attachment: Epix.xls
Explanation / Answer
To get profit maximizing price lets calculate profit at each level.
Profit = TR - TC
and TR = Price * number of subscriber
TC = Cost of license fee + general administrative and divisional cost
As you can see profit is maximized at Price of $11.5
Recommended price is $11.5. By adjusting price to this level, the profit will be $78221. And total revenue will be $152329.
Yes the revenue will increase as well.
Price No of subscribers Cost of license fees Divisoanl, general and adm costs TR TC Profit 5 29.974 134.883 14.5 149.87 149.383 0.487 5.5 29.256 131.651 14.5 160.908 146.151 14.757 6 17.822 80.199 14.5 106.932 94.699 12.233 6.5 22.657 101.956 14.5 147.2705 116.456 30.8145 7 19.897 89.537 14.5 139.279 104.037 35.242 7.5 16.671 75.017 14.5 125.0325 89.517 35.5155 8 20.492 92.213 14.5 163.936 106.713 57.223 8.5 20 89.998 14.5 170 104.498 65.502 9 19.76 88.92 14.5 177.84 103.42 74.42 9.5 17.123 77.053 14.5 162.6685 91.553 71.1155 10 12.643 56.896 14.5 126.43 71.396 55.034 10.5 12.785 57.532 14.5 134.2425 72.032 62.2105 11 12.216 54.974 14.5 134.376 69.474 64.902 11.5 13.246 59.608 14.5 152.329 74.108 78.221 12 8.637 38.867 14.5 103.644 53.367 50.277 12.5 10.595 47.78 14.5 132.4375 62.28 70.1575 13 5.857 26.357 14.5 76.141 40.857 35.284 13.5 2.615 11.768 14.5 35.3025 26.268 9.0345 14 2.739 12.326 14.5 38.346 26.826 11.52 14.5 5.291 23.809 14.5 76.7195 38.309 38.4105 15 3.051 13.73 14.5 45.765 28.23 17.535