Assignment – Price Quotes and Pricing Decisions Applied Problems

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Price Quotes and Pricing Decisions
Applied Problems

Please complete the following two applied problems:


Jessica Alba, a famous actress, starts the baby and family products business,
The Honest Company, with Christopher Gavigan. Alba and Gavigan set up their
site so families can choose what kinds of non-toxic, all-natural products
they’d like to use and get them in a bundle. Families can choose all kinds of
products from food to hygiene necessities and cleaning supplies. Suppose they
are thinking of expanding their business into five domestic markets: Phoenix,
Dallas, Chicago, New York, and Atlanta. Assume their primary goal of business
is to maximize economic profits, although they want to do business honestly.

Show all your calculations and process. Describe your answer for each question
in three- to five-complete sentences.

You are a business adviser for
Alba and Gavigan. Describe a skimming price and a penetration price, and
advise them whether they should charge a skimming price or a penetration
price, with supportive reasoning for and against each pricing alternative.
Are they likely to make
economic profits initially? Can they continue to make economic profits in
the long term? Why or why not? Discuss.
What advice would you give to
Alba and Gavigan to help them make more profit in the long term?


You operate your own small building company and have decided to bid on a
government contract to build a pedestrian walkway in a national park during the
coming winter. The walkway is to be of standard government design and should
involve no unexpected costs. Your present capacity utilization rate is moderate
and allows sufficient scope to understand this contract, if you win it. You
calculate your incremental costs to be $268,000 and your fully allocated costs
to be $440,000. Your usual practice is to add between 60% and 80% to your
incremental costs, depending on capacity utilization rate and other factors.
You expect three other firms to also bid on this contract, and you have
assembled the following competitor intelligence about those companies.


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Show all of your calculations and processes. Describe your answers in three- to
five-complete sentences.

What price would you bid if you
must win the project?
What price would you bid if you
want to maximize the expected value of the contribution from this
Defend your answers with
discussion, making any assumptions you feel are reasonable and/or are
supported by the information provided.

Carefully review“>Grading Rubric for the criteria that will be used to evaluate your

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