Allstate HVAC recently developed a low-end electronic thermostat that it plans on selling via a cable channel marketing program. The cable program's fee for selling the item is 20% of revenue. For this fee, the program will advertise the thermostat over six 10-minute segments in September. Allstate's fixed costs of producing the thermostats are $110,000 per production run. The company plans to wait for all orders to come in, and then it will produce exactly the number of units ordered. Variable production costs are $25 per unit. In addition, it will cost approximately $5 per unit to ship the thermostats to customers. Production time will be less than three weeks. Henry Kristen, a product manager at Allstate, is charged with recommending a price for the thermostat. Based on his experience with similar items, focus group responses, and survey information, he has estimated the number of units that can be sold at various prices: $$\begin{array} { l l }
\text { UnitPrice } & \text { Quantity } \
\hline \$ 74.99 & 15,000 \
\$ 63.99 & 20,000 \
\$ 54.99 & 25,000 \
\$ 49.99 & 35,000
\end{array}$$ At what price is profit maximized?

Question

Allstate HVAC recently developed a low-end electronic thermostat that it plans on selling via a cable channel marketing program. The cable program's fee for selling the item is 20% of revenue. For this fee, the program will advertise the thermostat over six 10-minute segments in September. Allstate's fixed costs of producing the thermostats are $110,000 per production run. The company plans to wait for all orders to come in, and then it will produce exactly the number of units ordered. Variable production costs are $25 per unit. In addition, it will cost approximately $5 per unit to ship the thermostats to customers. Production time will be less than three weeks. Henry Kristen, a product manager at Allstate, is charged with recommending a price for the thermostat. Based on his experience with similar items, focus group responses, and survey information, he has estimated the number of units that can be sold at various prices: $$\begin{array} { l l } 
\text { UnitPrice } & \text { Quantity } \
\hline \$ 74.99 & 15,000 \
\$ 63.99 & 20,000 \
\$ 54.99 & 25,000 \
\$ 49.99 & 35,000
\end{array}$$ At what price is profit maximized?

Quizplus · Accepted Answer

The Answer of Allstate HVAC recently developed a low-end electronic thermostat that it plans on selling via a cable channel marketing program. The cable program's fee for selling the item is 20% of revenue. For this fee, the program will advertise the thermostat over six 10-minute segments in September. Allstate's fixed costs of producing the thermostats are $110,000 per production run. The company plans to wait for all orders to come in, and then it will produce exactly the number of units ordered. Variable production costs are $25 per unit. In addition, it will cost approximately $5 per unit to ship the thermostats to customers. Production time will be less than three weeks. Henry Kristen, a product manager at Allstate, is charged with recommending a price for the thermostat. Based on his experience with similar items, focus group responses, and survey information, he has estimated the number of units that can be sold at various prices: $$\begin{array} { l l } 
\text { UnitPrice } & \text { Quantity } \
\hline \$ 74.99 & 15,000 \
\$ 63.99 & 20,000 \
\$ 54.99 & 25,000 \
\$ 49.99 & 35,000
\end{array}$$ At what price is profit maximized?

Allstate HVAC Recently Developed a Low-End Electronic Thermostat That It