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Ray Atkinson
Ray Atkinson, Graduate Student
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We recently added the LHN to our premium cable tier. Currently,

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We recently added the LHN to our premium cable tier.
Currently, 852 of our basic service subscribers purchase this service.
At the current price of $10.50, our revenues from this new channel are
$8,946 per month.
As you know, our penetration rate for LHN is not as high as we
expected. Compared with the other two pay services we offer (SEC
and B10), the number of subscribers for LHN is still rather low.
Some of our customers have indicated that the main reason they
haven’t signed up is the price.
To boost revenues, I am thinking that we might want to offer a
promotional price for LHN starting in July. Since this offer will be part
of our summer promotion plan and will be well publicized, the same
deal has to be offered to our existing subscribers as well. My concern
is that the additional subscriptions generated by the lower price may
not fully offset the revenues lost from our existing base of subscribers.
The marketing department provided the attached data on the demand
and costs for this channel in our Region 1 service area. Please
evaluate our current pricing strategy for LHN based on these data.
I am particularly interested (1) in whether lowering the price will yield
higher revenues, and (2) in an estimate of the maximum monthly
revenues we can achieve through this channel.

Price Subscribers License General
cost cost
$5.00 1.258 $7.233 $1.25
$5.50 1.270 $7.304 $1.25
$6.00 1.051 $6.044 $1.25
$6.50 1.131 $6.505 $1.25
$7.00 0.940 $5.405 $1.25
$7.50 1.025 $5.892 $1.25
$8.00 0.767 $4.412 $1.25
$8.50 1.211 $6.961 $1.25
$9.00 1.122 $6.453 $1.25
$9.50 1.114 $6.403 $1.25
$10.00 0.803 $4.615 $1.25
$10.50 0.544 $3.126 $1.25
$11.00 0.824 $4.737 $1.25
$11.50 0.914 $5.258 $1.25
$12.00 0.444 $2.550 $1.25
$12.50 0.906 $5.212 $1.25
$13.00 0.252 $1.447 $1.25
$13.50 0.445 $2.556 $1.25
$14.00 0.729 $4.194 $1.25
$14.50 0.525 $3.020 $1.25
$15.00 0.473 $2.719 $1.25

Coefficients
Intercept 1.624585714
Price -0.077948571
I am having a little trouble reading the table. I am particularly interested in the second column labeled "subscribers" but is a decimal number.
Customer: replied 4 years ago.


After the price is number of subscribers which does show as decimal but as indicated to us it is to be in thousands. For instance 1,258 and the other numbers would be 940. I know confusing but this is what was given to me.

Confirm: 1025 will subscribe at $7.50, but 940 at $7.00?

Customer: replied 4 years ago.

additional question:Where is price unit elastic between 10.00 and 11.50?


I used the slope -0.077948571* (P/Q).


 


Thanks

Am I right that more people will subscribe at $7.50 than $7.00?
Customer: replied 4 years ago.

yes that is correct.

Something is still awry here. I must be reading the table wrong.
are the license cost and general costs per customer, or are they in thousands? i.e. At the $5 level, it is $7.233 per customer, or is it $7233 total costs for all customer? Either way, it is a loss, but I am still confused.
The problem is set up to say that at $10.50, there are 825 customers, but the table says 544

Is there any way you can upload this file so I can read it as it is?
Customer: replied 4 years ago.


I apologize for not being thorough but yes those are also in thousands for the license fees and general fees. Let me see if I can upload the file.


 


 

Customer: replied 4 years ago.

Attachment: 2013-04-07_185848_case_study_a.xlsx


 


Not sure if that came through ok, I will try something else if that upload did not work.

The file is fine. The problem also only lists 852 customers and the gross revenue of $8946 without factoring in the costs. Since the question is about revenues, can we disregard costs? "I am particularly interested (1) in whether lowering the price will yield higher revenues, and (2) in an estimate of the maximum monthly revenues we can achieve through this channel."

 

I am also still trying to figure why the table says 544 customer at $10.50 instead of the 852 that is stated in the problem.

Customer: replied 4 years ago.

Yes you can leave that out. Just need help with answering the information listed. Thanks.

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Customer: replied 4 years ago.


One last question: will the additional subscriptions generated by the lower price fully offset the revenues lost from existing base of customers?

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