Case Study Questions on Pricing
Exercises in Pricing Question 1: Wheeler Feed Mills Wheeler Feed Mills Ltd. has a production capacity of 10 MT per hour. The cattlefeed is packed in 50 kg jute gunny bags. During the last three years, the company had seen a growth as follows: Year 1997‐8 1998‐9 1999‐0 Sales in MT 26208 32236 39972 % over Prev.Yr 18% 23% 24%
The company operates three shifts a day on all days. Sunday is earmarked for weekly maintenance. The product’s price is Rs.1.25 per kg including sales tax of 10%. There are no middlemen in the distribution of the product. The cost of feed per kilo is as follows (in rupees): Raw Materials Contract Labor Electricity Sales Tax Freight 0.50 0.05 0.05 0.15 0.12 0.15 0.05
Administrative overheads Plant depreciation
The department of animal husbandry in the state has sent an urgent enquiry seeking whether the company will be able to supply them on a one‐time‐purchase basis a quantity of 2000 MT of feed. They had indicated a price of one rupee per kilo.
Question 2: The Grand Theatre The Grand Theatre is a movie‐house in a small‐sized educational town. The theatre shows unusual films and treats early‐arriving moviegoers to a live organ and Bugs Bunny cartoons. It shows movies once a day, at night. If the theatre is open, the owners have to pay a fixed amount of $500 for films, ushers and so on, regardless of how many people come to the movie. If the theatre is closed (meaning it does not show the film in 1
a night), then the cost is zero (ignoring the minor electricity charges and measly watchman salary). The nightly demand for Grand theater movies by students is QS= 200 – 40 PS where QS is the number of movie tickets demanded by students at price PS. The nightly demand for non‐student moviegoers is QN=160 – 20 PN where QN is the demand at price PN. Once a person buys a
The company operates three shifts a day on all days. Sunday is earmarked for weekly maintenance. The product’s price is Rs.1.25 per kg including sales tax of 10%. There are no middlemen in the distribution of the product. The cost of feed per kilo is as follows (in rupees): Raw Materials Contract Labor Electricity Sales Tax Freight 0.50 0.05 0.05 0.15 0.12 0.15 0.05
Administrative overheads Plant depreciation
The department of animal husbandry in the state has sent an urgent enquiry seeking whether the company will be able to supply them on a one‐time‐purchase basis a quantity of 2000 MT of feed. They had indicated a price of one rupee per kilo.
Question 2: The Grand Theatre The Grand Theatre is a movie‐house in a small‐sized educational town. The theatre shows unusual films and treats early‐arriving moviegoers to a live organ and Bugs Bunny cartoons. It shows movies once a day, at night. If the theatre is open, the owners have to pay a fixed amount of $500 for films, ushers and so on, regardless of how many people come to the movie. If the theatre is closed (meaning it does not show the film in 1
a night), then the cost is zero (ignoring the minor electricity charges and measly watchman salary). The nightly demand for Grand theater movies by students is QS= 200 – 40 PS where QS is the number of movie tickets demanded by students at price PS. The nightly demand for non‐student moviegoers is QN=160 – 20 PN where QN is the demand at price PN. Once a person buys a