Cost strcture and pricing

Assignment Help Business Economics

Reference no: EM131101298

COST STRCTURE and PRICING: Sting Ray PoolVac, Inc. manufactures and sells a single product called the “Sting Ray,” which is a patent-protected automatic cleaning device for swimming pools. PoolVac’s Sting Ray faces its closest competitor, Howard Industries, also selling a competing pool cleaner. Using the last 26 quarters of production and cost data, PoolVac wishes to estimate its average variable costs using the following quadratic specification: AVC = a + bQ + cQ2 The quarterly data on average variable cost (AVC), and the quantity of Sting Rays produced and sold each quarter (Q) are presented in the data file. PoolVac also wishes to use its sales data for the last 26 quarters to estimate demand for its Sting Ray. Demand for Sting Rays is specified to be a linear function as the following: Qd =d+eP+fM+gPH in which its price (P), average income for households in the U.S. that have swimming pools (M), and the price of the competing pool cleaner sold by Howard Industries (PH). QUESTIONS 1. Run the appropriate regression to estimate the average variable cost function (AVC)for Sting Rays. Evaluate the statistical significance of the three estimated parameters using a significance level of 5 percent. Be sure to comment on the algebraic signs of the three parameter estimates. (30%) 2. Given your answer in 1, show the estimated total variable cost, average variable cost, and marginal cost functions (TVC, AVC, and MC) for PoolVac. (15%) 3. Apply dummy variable to construct the time-series quarterly sales estimation of Sting Ray (Hint: Q = A+Bt+...). Please predict the quantity sold in the first quarter 2013. (10%) 4. Run the appropriate regression to estimate the demand function for Sting Rays. Evaluate the statistical significance of the three estimated slope parameters using a significance level of 5 percent. Discuss the appropriateness of the algebraic signs of each of the three slope parameter estimates. (20%) 5. The manager at PoolVac, Inc. believes Howard Industries is going to price its automatic pool cleaner at $250, and average household income in the U.S. is expected to be $65,000. Using the regression results from Question 4, write the estimated demand function (with only P as the independent variable), inverse demand function, and marginal revenue (MR) function. (15%) 6. Given your MC function in question 2 and MR function in question 5, what is the profit-maximizing unit price PoolVac should charge for Sting Ray? (10%)

Reference no: EM131101298

Questions Cloud

Why is the aggregate demand curve downward sloping : List and explain two factors that will cause the AD to shift to the left. Why is the aggregate demand (AD) curve downward sloping? Discuss and use graphs where necessary?

Produce steel tubing requires an initial investment : A new plant to produce steel tubing requires an initial investment of $10 million. It is expected an additional investment of $ 5 million in year 3 and an investment of $ 3 million in year 6. Annual operating cost will be $ 3 million. The Annual reve..

Explain the effect devaluation has on price of imports : Explain the concept of devaluation, and explain the effect devaluation has on the price of a country's imports. What some effects on the industry? Buying and selling countries? Give an example that supports your claims.

The total depreciation deductions for the tax year equal : General Patton LTD generated $6,900,000 of gross income during its tax year and incurred operating expenses of $1,875,000. Property taxes on business assets amount to $140,000. The total depreciation deductions for the tax year equal $350,000. What i..

Cost strcture and pricing : COST STRCTURE and PRICING: Sting Ray PoolVac, Inc. manufactures and sells a single product called the “Sting Ray,” which is a patent-protected automatic cleaning device for swimming pools. PoolVac’s Sting Ray faces its closest competitor, Howard Indu..

What is the unemployment rate for this simple economy : What is the unemployment rate for this simple economy? What is the labor force participation rate for this simple economy? Suppose the working-age population of a fictional economy falls into the following categories: 90 are retired or homemakers; 60..

What amount must he raise for its establishment : The local Audubon Society has just put a new bird feeder in the park at a cost of $500. The feeder has a useful life of 5 years and an annual maintenance cost of $50. Fred, was very impressed with the project. He wants to establish a fund that will m..

Building be justified in paying for sprinkler system : How much would the owner of a building be justified in paying for a sprinkler system that will save $750 a year in insurance premiums if the system has to be replaced every 20years and has a salvage value equal to 10% of its initial cost? Assume mone..

Mixed economies combining nationalization : After World War II most western countries moved away from free markets and constructed 'mixed economies' combining nationalization, state planning, and Keynesian demand management. Why were policymakers so keen to abandon markets and adopt state plan..

User Account

All Pages