1. Assignment Read course PowerPoint file: MBD 2 Proj1.pptx (Slides 35-63)

2. Demand Demand represents price The “x-axis” will be a “q-axis” representing quantity The “y-axis” will be a “D(q)-axis” representing price

3. Demand Formulas given in two ways: - Stated explicitly - Found using trend lines

4. Demand Typical Graph: (note intercepts, note no negatives)

5. Demand q-intercept: max quantity (price is $0) D(q)-intercept: max price (quantity is 0 units)

6. Demand Questions to consider: How do you determine the q-intercept? How do you determine the D(q)-intercept?

7. Revenue Revenue represents total inflow of money The “x-axis” will be a “q-axis” representing quantity The “y-axis” will be a “R(q)-axis” representing revenue Formula found from, never from trend lines for the project

8. Revenue Typical Graph: (note intercepts and max. point, note no negatives)

9. Revenue First intercept: 0 quantity gives $0 revenue Second intercept: $0 price gives $0 revenue Max point: maximum revenue

10. Revenue Questions to consider: How do you determine the maximum point? What does the q-value represent? What does the R(q)-value represent?

11. Cost Cost represents total outflow of money Total cost has 2 components: - Fixed Cost: - Variable Cost:

12. Cost Fixed Cost is preproduction cost Variable Cost is a per unit cost Formula either given or constructed using given info

13. Cost Typical Graph: (note graph always increases, note no negatives)

14. Cost Note at q = 0, C(q)-intercept is above q-axis due to fixed cost

15. Profit Profit represents net income Profit is revenue minus cost

16. Profit Typical Graph: (Note intercepts and maximum, note graph can be negative)

17. Profit Intercepts: Break-even points ($0 profit) Max. point: Maximum profit Profit can be negative

18. Revenue Questions to consider: How do you determine the maximum point? What does the q-value represent? What does the P(q)-value represent? How do you determine the q-intercepts?

19. Demand, Revenue, Cost, & Profit Ex. Suppose the following data represents the total pairs of shoes sold in a month at a particular price in dollars. Use a second degree polynomial trend line to find an approximate model for the demand function Pairs of shoesPrice 200$76 350$68 450$59 700$53 900$40 1100$24

20. Demand, Revenue, Cost, & Profit

21. Generating graph of revenue Use “Plotting Points” method Use interval [0, q] where q is the q-intercept from Demand graph

22. Demand, Revenue, Cost, & Profit

23. Optimal quantity to maximize revenue is about 800 units. Maximum Revenue is about $36,000 Price should be about $45

24. Demand, Revenue, Cost, & Profit Ex. If the fixed cost is $2000 and the variable cost is $35 per unit, determine a formula for total cost and graph C(q). C(q) = 2000 + 35q

25. Demand, Revenue, Cost, & Profit

26. Use the graphs of revenue and cost to determine the approximate quantities where profit is zero. Use the graphs of revenue and cost to determine the approximate quantity where profit is maximized. What is the maximum profit?

27. Demand, Revenue, Cost, & Profit Graph of Revenue and Cost (determine profit)

28. Demand, Revenue, Cost, & Profit Quantities where profit is zero: 50 units and 925 units Quantity where profit is maximized: 500 units Maximum profit: $11,000

29. Demand, Revenue, Cost, & Profit Profit function: P(q) = R(q) - C(q)

30. Demand, Revenue, Cost, & Profit Use the graph of profit to determine the approximate quantities where profit is zero. Use the graphs of profit to determine the approximate quantity where profit is maximized. What is the maximum profit?

31. Demand, Revenue, Cost, & Profit Quantities where profit is zero: 50 units and 925 units Quantity where profit is maximized: 500 units Maximum profit: $11,000

32. Demand, Revenue, Cost, & Profit Project (Demand)

33. Demand, Revenue, Cost, & Profit Project (Demand) Determine the projected national sales

34. Demand, Revenue, Cost, & Profit Project (Demand)

35. Demand, Revenue, Cost, & Profit Project - Determine quadratic demand trend line (8 decimal places)

36. Demand, Revenue, Cost, & Profit Project

37. Demand, Revenue, Cost, & Profit Project q-intercept found by setting D(q) = 0 and solving by using the quadratic formula D(q)-intercept found by setting q = 0

38. Demand, Revenue, Cost, & Profit Project q-intercept is about (2480.767, 0) This means that the maximum number of units that could be produced and sold (for $0) are 2,480,767 D(q)-intercept is about (0, 414.53) This means that the maximum price that could be set (selling 0 units) is $414.53

39. Demand, Revenue, Cost, & Profit Project - Keep units straight - Prices (dollars) - Revenue (millions of dollars) - Quantities in test markets (whole units) - Quantities in national market (thousands of units)

40. Demand, Revenue, Cost, & Profit Project (Revenue) - Units should be millions of dollars - Typically - Must adjust for units

41. Demand, Revenue, Cost, & Profit Project (Revenue) Must convert revenue to millions of dollars ***Use this formula

42. Demand, Revenue, Cost, & Profit Project (Revenue) – use “plotting points” method

43. Demand, Revenue, Cost, & Profit Project (Cost) Ex. Calculate the total cost for 1.5 million units

44. Demand, Revenue, Cost, & Profit Project (Cost) - Use COST function from Marketing Focus.xlsx - Open Marketing Focus.xlsx and your Excel file - If you do not see the “Developer tab” click the Microsoft Office button, Excel options, Popular, Show developer tab

45. Demand, Revenue, Cost, & Profit Project (Cost) - Click on Developer tab, Visual Basic - In the side bar, select VBAProjects (Marketing Focus.xlsx)

46. Demand, Revenue, Cost, & Profit Project (Cost) - Locate Module 1 under VBAProject (Marketing Focus.xlsx) - Drag Module 1 into your Excel file - Close Visual Basic file

47. Demand, Revenue, Cost, & Profit Project (Cost) 7 parameters for COST function quantity fixed cost batch size 1 batch size 2 marginal cost 1 marginal cost 2 marginal cost 3

48. Demand, Revenue, Cost, & Profit Project (Revenue and Cost) - Graph both R(q) and C(q) - Use “plotting points” method - COST function: Insert/Function/User Defined

49. Demand, Revenue, Cost, & Profit Project (Revenue and Cost)

50. Demand, Revenue, Cost, & Profit Project (Profit – note the two “peaks”)

51. Demand, Revenue, Cost, & Profit Project (Revenue and Cost) - Determine important information from graphs Break-even pts at about 650,000 and 1,700,000 units (zero profit) Max profit at about 1,200,000 units Negative profit: q 1,700K Break-even pts Largest gap = max profit

52. Demand, Revenue, Cost, & Profit Project (Revenue and Cost) - Determine important information from graphs Break-even pts at about 650,000 and 1,700,000 units (zero profit) Max profit at about 1,200,000 units Negative profit: q 1,700K Break-even pts Max profit

53. Demand, Revenue, Cost, & Profit Project (What to do) - Create Demand graph using trend lines - Create Revenue and Cost graph - Create Profit graph

54. Demand, Revenue, Cost, & Profit Questions to consider: How do you determine the higher of the two peaks in a profit graph? What causes the cusp (sharp point) in the profit graph?