Quantitative Analysis (Lecture #7)

Question 1

Market share formula

Answer 1

MS($)= your brand $ sales/ total segment $ sales

MS (units)= your brand unit sales/ total segment unit sales

Question 2

what is market share?

Answer 2

the percent of the total market (expressed in units or dollars) that your brand or product controls

Question 3

def. fixed costs (FC)

Answer 3

costs that do not fluctuate with changes in volume of production (i.e. advertising, public relations, fixed salaries, administration and overhead, rent, research, and development…)

Question 4

def. variable costs (VC)

Answer 4

costs that are directly associated with volume of production (i.e. labour,materials, transportation, promotion costs such as allowances, coupons,, …).

Question 5

def. contribution margin (CM)

Answer 5

represents how much is left over after accounting for thevariable costs to cover fixed expenses. Contribution Margin % tells you what % of each $you earn goes towards covering fixed expenses

Question 6

formula for CM (unit a percentage)

Answer 6

CM (unit as a %)= [SP(unit)-VC(unit)]/SP(unit)

Question 7

CM formula (unit)

Answer 7

CM(unit)=SP(unit)−VC(unit)

Question 8

def. profit contribution (PC)

Answer 8

represents how much is left over after accounting for all costs (fixed and variable)

Question 9

What is breakeven?

Answer 9

the point where you can cover your fixed costs (not total costs)

Question 10

breakeven (units) formula

Answer 10

BE(units)= (total FC)/(SP(unit)- VC(unit))

Question 11

Breakeven ($) formula

Answer 11

BE($)= Total FC/ [1-(VC/SP)]

Question 12

def. price elasticity (PE)

Answer 12

measures how responsive demand would be to a change in price

Question 13

price elasticity formula

Answer 13

PE= % change in demand/ % change in SP

where % change= (new - old)/old

Question 14

if absolute PE < 1, the product is _________

Answer 14

price inelastic

Question 15

if absolute PE >1, the product is ________

Answer 15

price elastic

Question 16

if absolute PE = 1, the product is _______

Answer 16

unit elastic

Question 17

What does it mean if a product is price inelastic?

Answer 17

• price has little effect on demand
• Here, a decrease in price yields a less than proportional increase in demand and an increase in price yields a less than proportional decrease in demand
• generally, lowering price price decreases profits, and raising price, increases profits

Question 18

What does it mean if a product is price elastic?

Answer 18

• price has a relatively significant effect on demand
• Here, a decrease in price yields a greater than proportional increase in demand and an increase inprice yields a greater than proportional decrease in demand
• generally, lowering price increases profit, and raising price decreases profit

Question 19

what does it mean if a product is unit elastic?

Answer 19

here, an increase or decrease in price yields the same change in demand

Question 20

def. cross-price elasticity (CPE)

Answer 20

examines the relationship between changing the price of oneproduct and measuring the effect on the demand of a second product

Question 21

With CPE what happens with complementary products?

Answer 21

raising the price of one will yield a decrease in demand in the other (negative CPE)

Question 22

with CPE what happens with substitute products?

Answer 22

raising the price in one product will lead to an increase in demand for the other (positive CPE)

Question 23

Price chain formula: CM% on SP

Answer 23

CM%onSP= [SP(unit)-VC(unit)] / SP(unit)

Question 24

Price chain formula: Markup%onCost

Answer 24

Markup%onCost=[SP(unit)-VC(unit)] / VC(unit)

Question 25

Price chain formula: used when CM on SP is known but not the SP

Answer 25

SP=VC(unit) / [100%−CM%onSP]

Question 26

Price chain formula: used when you know the markup % on Cost but not the SP

Answer 26

SP = VC (unit) + Markup % on Cost × VC (unit)