Reference no: EM132771500

Question 1. You love soft-serve ice cream. In the afternoons during the week at your high-paying job in mid-town Manhattan, you frequently find yourself in line for Mr. Softee (see picture) paying $6 for a vanilla cone with rainbow sprinkles. In order to save some money on rent and other living expenses, you decide to move from mid-town out to Park Slope, Brooklyn, and are surprised to find that Mr. Softee trucks sell the same vanilla cone with rainbow sprinkles for only $3.75 in your new neighborhood. When you mention this to a friend, they tell you that ice cream costs more in mid-town because the vending license to operate in Manhattan is significantly more expensive.

Assume your friend is right about the cost of vending licenses in different parts of New York. Imagine you are an owner/operator of a Mr. Softee truck in mid-town and are making decisions about how much to charge for ice cream. (Mr. Softee is a franchise - operators pay fees to Mr. Softee and run their businesses independently.) How should you take the license fee into account when setting ice cream prices?

Question 2: A friend of yours is visiting the city for a few days and asks if you'd like to go to last showing of an IMAX movie that has just come out - your friend reminds you that IMAX tickets cost $31.5 . You give this some thought - you're not a huge movie fan - and decide your willingness to pay for themovie is slightly above the price. So you agree to the plan, get on the internet, and purchase a non-refundable ticket online for $31.5. When you arrive at the theater, you realize you forgot your credit card, which you need to enter into a machine at the theater to retrieve your ticket. So you are unable to collect the ticket you purchased and it's too late to go back to your house to retrieve the credit card - the movie starts in 10 minutes?

Should you spend another $31.5 to buy another ticket? Why, or why not?

Question 3. A grocery store owned by Ms. Gomez has $375000 in annual revenues and the following annual costs:
Supplies: $37500 Electricity: $9000
Employee salaries: $112500 Ms. Gomez's salary: $120000
Ms. Gomez always has the option of closing down her store and renting out the land for $150000 per year. Also Ms. Gomez herself has job offers at a local supermarket, with an annual salary of $142500, and at a nearby restaurant, with an annual salary of $97500 .

She can only work one job though. Should Ms. Gomez shut down her shop? Why, or why not?

Question 4. Tiendatek Tablets

David del Ser is the chairman of Frogtek, a company he co-founded in 2008 with classmate Mark Pedersen while the two were students at Columbia Business School. Frogtek's main product - Tiendatek - is a point-of-sale software application, delivered via a computer tablet with a barcode reader attached, that helps small business owners manage inventories, optimize reorder decisions, and otherwise more effectively manage their finances.

rtogtek is looking to launch Tiendatek in Bogota. Tiendatek's software is developed, but they must acquire the hardware for the Bogota launch. David identified a manufacturer in Taiwan, Cipherlab, which will provide both tablets and barcode readers for a combined price of $180. David and Mark have polled the small business owners of Bogota to get a sense of how many Tiendatek systems they are likely to sell at different price points. They have divided their consumer market into ten groups (e.g., small supermarkets, convenience stores, kiosks, etc. would each be classified as a distinct consumer group). These groups vary in willingness to pay for the product and group size. Their polling data are given here, with each group labeled with a letter - A through J - sorted in descending order of WTP. (For simplicity, you can assume each member of the group has the same WTP, e.g., all 75 customers in group A would pay up to $600 for Tiendatek, all 125 customers in group B would pay up to $487.5 for Tiendatek, etc.)

(a) Using the data, plot the consumer demand curve and the marginal revenue curve for Tiendatek. At what price point would revenue from Tiendatek sales be maximized?

(b) Given the cost of Tiendatek hardware, what price should David set for Tiendatek and how what quantity of Tiendatek sales should be targeted? Please provide supporting evidence for your recommendation and use the concepts of marginal revenue and marginal cost in explaining the rationale for why you chose this price and sales target. Cipherlab comes to David with a second purchase option. If he orders 900 tablet-reader combinations, Cipherlab will charge him $135000 (i.e., $150 per combo). David knows he would dispose of any excess inventories at the end of the year by selling to a local wholesaler, rather than hold inventory, and has a quote from one wholesaler for $105 per table-reader combo.

(c) Should David put in a bulk order? If so, what price do you recommend David set for Tiendatek in Bogota? Again, please present your rationale for why you chose this price and supporting evidence for your recommendation.

Attachment:- ME problem.rar