Question

I would like you to analyze our current pricing scheme on our Chevy Tahoe in the Southwest region and give me a recommendation on how we can maximize our revenue. I am interested in maximizing our revenue in order to be able to finance the upgrading of our dealership intranet.

Our sales department has estimated the following semiannual demand Q = 25,000 - 1.25P_TAH + 1.5P_SEQ.

Notice that we have included the impact that the Toyota Sequoia has on our Tahoe demand as it currently is our principal rival in the geographic region.

We are currently charging $42,500 for our base Tahoe and we notice that Toyota is currently charging $50,000 for its base Sequoia. Let me know what price you would recommend to maximize our revenue as I am hoping there is room to bring our price point more in line with the Sequoia.

Answer 1

The semi annual demand is given by - O z 25,000 -1.25 Prah tlinXPER of Pro $50,000 Then demand equation can be written as - 25,000 -1.25x Pro +1.58 soooo = 25,000 -1.25x tah + 75,000 Od = logooo -1.25x rah. 1.25h a 100,000 - od &= 80,000 - 0.8ld Total Revenue = Px Qd = 8000od-0.8 da To maximize Total Revenue: 20 80000 - 0.8% 2x Qd = 0 80,000 - 1.6 Qd =0. Qd = 50,000 units. P = 80,000 -0.8x Soooo = $40,000 The revenue is maximized when orice charged guul tо Чочоо ƏTR 20. is