Question

Zevon Enterprises provides services for clients worldwide and to protect all parties to this course as well as Zevon, we shall refer to those services as X1, X2, and X3. Each of these services has its own special mix of needs for the resources the company has at its disposal. The X1 product requires three lawyers, seven guns, and $6,000; the X2 product requires two lawyers, five guns, and $4,000; and the X3 product requires four lawyers, six guns, and $7,000. Zevon has access to 5,000 lawyers, 10,000 guns, and $15,000,000. For ease of conversation, Zevon employees usually speak about dollars as "per thousand" so one of them asking for $7 means that they really need $7,000.

Zevon's demand is variable depending on what they charge for it. For example, the X1 product's demand is X1 = 200 - 2.25p1. The demand for X2 is X2 = 300 - 3p2, and the demand for X3 is X3 = 400 - 3.5p3. The per-unit profit for X1 through X3 can be calculated by subtracting the per-unit cost from the sales price, so for X1, the profit is p1 - 2.25, for X2 the profit is p2 - 3, and for X3 the profit is p3 - 3.5.
The model is entered in Excel and executes to reveal that p1 equals $45.57. Which of these conclusions is correct?


a) The contribution to net profit from service X2 is $7,056.75
b) The per-unit profit for service X2 is $51.50
c) There is excess demand for service X1
d) The demand for X2 is 194.

Answer 1

The correct answer is option (a) The contribution to net profit from service X2 is $7,056.75

Step-by-step explanation:

Given data:

X₁ product's demand is X₁ = 200 - 2.25p₁

The demand for X₂ is X₂ = 300 - 3p₂

The demand for X₃ is X₃ = 400 - 3.5p₃

Profit for X₁= p₁ - 2.25

Profit for X₂ =p₂- 3

Profit for X₃ =p₃ - 3.5

Given p₂ as $51.50,

The demand for X₂ becomes

X₂ =300-3p₂

X₂ = 300-(3 * 51.50)

= 300-154.5

= $145.5

Calculating the profit for X₂, we have

Profit for P₂ = 145.5*(51.5-3)

= 145.5 *48.5

p₂ = 7056.75

Therefore, the correct answer is option (a)

Answer 2

$7,056.75

Step-by-step explanation:

If p2 is 51.5 then the demand is

X2 = 300-3*51.5 = 145.5

This means the profit obtained is

Profit for P2 = 145.5*(51.5-3) = $7,056.75