Office Enterprises (OE) produces a line of metal office file cabinets. The compa

Question

Office Enterprises (OE) produces a line of metal office file cabinets. The company’s economist, having investigated a large number of past data, has established the following equation of demand for these cabinets: Q = 10,000 + 60B – 100P + 50C where Q = Annual number of cabinets sold B = Index of nonresidential construction P = Average price per cabinet charged by OE C = Average price per cabinet charged by OE’s closest competitor It is expected that next year’s nonresidential construction index will stand at 160, OE’s average price will be $40, and the competitor’s average price will be $35. Forecast annual sales. Enter your response as a whole number without the dollar sign. What will be the new sales forecast if OE reacts to the decrease mentioned in the previous question by lowering its price to $37? (The competitor's price will now be $32 and the firm's own price will be $37.)

B. If the index forecast was wrong, and it turns out to be only 140 next year, what will be OE’s projected sales assuming the original price information of P = $40 and C = $35? Enter your answer as whole numbers

Explanation / Answer

A) given the data forecast for sales = 10,000 + 60 * 160 - 100 * 40 + 50 * 35 = 17,350.

If competitor's price falls to $32 his forecast for sales = 10,000 + 60 * 160 - 100 * 40 + 50 * 32 = 17,200.

B) If index forecast turns out to be $140 then the sales forecast = 10,000 + 60 * 140 - 100 * 40 + 50 * 35 = 16,150

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