A General Motors executive is considering how to price the 2013 Chevy Volt elect

Question

A General Motors executive is considering how to price the 2013 Chevy Volt electric car in order to maximize profits for the company. Manufacturing each Volt involves $9,500 of materials $12,500 of labor $3,800 of shipping and $4,000 of other supplies. The Detroit facility where the Volt is manufactured has $12.5 milliion of fixed costs. The marketing department says that adding a Bose sound system would boost demand, but it would cost an additional $750 per unit.

The quantity demaded at each per unit price is as follows:
Price Quantity Demanded (no Bose) Quantity Demanded (With Bose)
$29,000 14,000 16,800
$30,000 11,200 13,440
$31,000 8,960 10,752
$32,000 7,168 8,602
$33,000 5,734 6,881
$34,000 4,588 5,505
$35,000 3,670 4,404
$36,000 2,936 3,523
$37,000 2,349 2,819
$38,000 1,879 2,255
$39,000 1,503 1,804
$40,000 1,203 1,443

What profit maximizing strategy should she choose?

Explanation / Answer

The profit maximizes when the price is set at 35000 for a car with boss system.

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Variable per car Variable per car Price Without Boss With Boss Fixed Cost Without Boss Cost With Boss Cost Without Boss Profit With Boss Profit 29,000 14,000 16,800 1,25,00,000 29,800 30,550 $-2,37,00,000.00 $-3,85,40,000.00 30,000 11,200 13,440 1,25,00,000 29,800 30,550 $-1,02,60,000.00 $-1,98,92,000.00 31,000 8,960 10,752 1,25,00,000 29,800 30,550 $-17,48,000.00 $-76,61,600.00 32,000 7,168 8,602 1,25,00,000 29,800 30,550 $32,69,600.00 $-27,100.00 33,000 5,734 6,881 1,25,00,000 29,800 30,550 $58,48,800.00 $43,58,450.00 34,000 4,588 5,505 1,25,00,000 29,800 30,550 $67,69,600.00 $64,92,250.00 35,000 3,670 4,404 1,25,00,000 29,800 30,550 $65,84,000.00 $70,97,800.00 36,000 2,936 3,523 1,25,00,000 29,800 30,550 $57,03,200.00 $67,00,350.00 37,000 2,349 2,819 1,25,00,000 29,800 30,550 $44,12,800.00 $56,82,550.00 38,000 1,879 2,255 1,25,00,000 29,800 30,550 $29,07,800.00 $42,99,750.00 39,000 1,503 1,804 1,25,00,000 29,800 30,550 $13,27,600.00 $27,43,800.00 40,000 1,203 1,443 1,25,00,000 29,800 30,550 $-2,29,400.00 $11,36,350.00

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