1. A typical tube-style incandescent light bulb lasts for 1,000 hours and is available to consumers for $3.00 per bulb. A manufacturer has produced a tube-style halogen light bulb that gives the same amount of light as the incandescent bulb but lasts for 1,300 hours. The halogen bulb also uses less energy than the incandescent bulb, saving the consumer $0.50 in electricity costs for every 1,000 hours of light-bulb use. (a) What is the value to the customer of the manufacturer’s tube-style halogen light bulb to consumers who are currently buying tube-style incandescent light bulbs? Show your work. (b) If the manufacturer’s variable costs for producing these halogen light bulbs are $1.80 per bulb, specify the price ceiling and the price floor for these halogen bulbs. Explain your reasoning. (c) According to the course material, what is meant by the strategic prominence of price? If the halogen light bulb manufacturer wants to make price the lead activity in the marketing mix, would he set the bulb’s price closer to its price ceiling or closer to its price floor? Explain your reasoning. (d) If the manufacturer wants to make price the lead marketing mix activity in selling the light bulbs, then how should he try to frame the bulb’s price to consumers: as one loss, as two losses, or as a loss and a gain? Explain your reasoning. 2. A suburban lawn-care company has nonincremental fixed costs of $6,000 per month. It currently services 400 lawns per month at an average price of $30 per lawn. The company’s variable costs are $19 per lawn. If the company’s total sales increase beyond 550 lawns per month (i.e., 150 more lawns than are currently serviced), new equipment would have to be purchased that would involve incremental fixed costs of $760 per month. (a) Calculate the breakeven sales level for a $5 per lawn price increase. Show your work. (b) Calculate the breakeven sales level for a $5 per lawn price decrease. Show your work. (Hint: consider the possibility of incremental fixed costs.) (c) Data from past price changes indicates that the company can expect a price elasticity of –1.2. Based on this price elasticity, calculate the percent change in sales that the company could expect from a $5 price increase. Then calculate the percent change in sales that the company could expect from a $5 price decrease. Show your work. (d) Using your answers from Parts (a), (b), and (c) and the change-in-profit formula, calculate the change in profit that the lawn-care company could expect for a $5 price increase and for a $5 price decrease (again, show your work). Based on these calculations, which one of these two price changes would you recommend the company carry out? Explain your reasoning.

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Introduction Pricing of different products in the market has definitely an important value as it helps to create revenue Pricing strategy is required in our competitive environment as it helps to crea... View the full answer