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Imagine you are the marketing manager for a firm that is planning to introduce a new product. You need to estimate the daily net profit for this product, which will be calculated as:

Net Profit = Sales Volume * (Selling Price Unit cost) Fixed costs

Fixed costs (for overhead, advertising, etc.) are known to be $100.00. But the other factors all involve some uncertainty. Sales volume (in units) can cover quite a range, and the selling price per unit will depend on competitor actions. Unit costs will also vary depending on vendor prices and production experience.

Based on your market research, you believe that there are equal chances that the market will be Slow, OK, or Hot.

a) In the Slow market scenario, you expect to sell 50 units at an average selling price of $11.00 per unit. Your firms production manager advises you that unit costs may be $7.50.

b) In the OK market scenario, you expect to sell 75 units, but youll likely realize a lower average selling price of $10.00 per unit. Your firms production manager advises you that unit costs may be $6.50.

c) In the Hot market scenario, you expect to sell 100 units, but this will bring in competitors who will drive down the average selling price to $8.00 per unit. Your firms production manager advises you that unit costs may be $5.50.

Simulate this situation for 10 years (1 year = 365 days).

What is the approximate value of the average daily profit?

a.

$160.00

b.

$180.00

c.

$.190.00

d.

$170.00

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