Reference no: EM13488326

1. Gobi Inc. has sales of $40,000,000. The contribution margin is 40% and the fixed costs are $3,000,000. The variable cost per unit is $12. The company is considering two different strategies for increasing their profits:
1. Spend $2,000,000 in advertising; the results is expected to increase the company's sales by 25%
2. Reduce the price by 20%; the price-demand elasticity is -3.0
Which of the two strategies will generate the highest overall profits? Show all calculations!


2.. The Tropical Paradise Resort is located on the coast of an exotic Pacific island. Room rates are $300 per night, which includes free access to the pool, gym, and tennis courts. The resort also offers the following services:

• Aerobics classes ($5 per)
• Therapeutic massages ($40 per)
• Scuba-diving trip to a nearby coral reef ($60 per)
• Day trips to an island volcano ($100 per trip)

The average stay is five days. The hotel is considering two pricing options:

1. Charge the regular room rate and charge separately for the four services above
2. Charge a higher room rate, which includes the services
The resort's objective is to maximize long-term profits by attracting repeat and new customers. Should they price their services separately or bundle them? Why? Besides prices, what other factors are important in your decision?