Your run a software company that is introducing a new software package for monitoring internet usage. You are trying to determine what type of introductory discount you should give. The list price of the software is $50.00, and its variable cost is $7.00. You are evaluating the following three options.

- No change. Keep the price at $50.00. In this case, the expected sales level is 100,000 units.

- Rebate Coupon. Include a $10 rebate coupon in the box. Experience shows that only 20 % of the buyers bother to redeem "in- box" coupons. Including the coupon will increase sales by 20%.

- Price Cut. Decrease the price by $5. In this, case the sales is expected to increase by 15 %.

- Bundling. Bundle the software with an internet browser. This option will increase the variable cost by $3.00. The increase in the sales with this option is unknown.

(a) Giventhisinformation,howmuchwouldtheincreaseinsales from the "Bundling" option have to be before you are indifferent to this and the "No change" option?

(b) It turns out that the last option is not viable because a high court anti-trust ruling will not allow Microsoft to give you their browser. Moreover, suppose you are not really sure about the exact increase in sales from the "Rebate Coupon" and the "Price Cut" options. However, you estimate that the increase in sales due to the "Rebate Coupon" option will lie between 5% and 30%; for the "Price Cut" option, the increase in sales will be between 10% and 20 %. Perform a sensitivity analysis that will help you select between the first three options.

Answer rating: 100% (QA)

a If the sales due to the bundling option is 30 then the total sales of the company will be 130000 T... View the full answer