Silicon Technologies, currently sells 17\" monitors for $270 It has costs of $21

Question

Silicon Technologies, currently sells 17" monitors for $270 It has costs of $210. A competitor is bringing a new 17" monitor to market that will sell for $230. Management believes It must low price to $230 to compete in the market for 17" monitors. Silicon believes that the new price win cause sales to increase by 10%, even with a new competitor In the market Silicon's sales are currently 5,000 monitors per year. What is the change In operating Income If marketing manager is correct and only the sales price changed?

Explanation / Answer

Current profit = (270-210)*5000 i.e 300000

New Profit = (230-210)*5000*110% i.e 110000

Net operating income will reduce by 190000

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