Rover plus, a pet product store, is considering pricing a new RoverPlus labeled dog food. The company will buy the premium dog food from a company in Indiana that packs the product with a Rover Plus label. Rover pays $6 for a 50 pound bag delivered to its store. The company also sells Royal Dog Food (under the Royal Fog Food label), which it purchases for $ 9 per pound bag and sells for $16.99. The company currently sells 25,000 bags of Royal Dog Food per month, but that is expected to change when the Rover Plus brand is introduced. The company will continue to price the Royal Dog Food brand at $16.99. The quantity of RoverPlus and the quantity of Royal Dog Food that will be sold at various prices for Royal are estimated as:
|
Price of Rover Plus
|
Quantity of Rover Plus
|
Quantity of Royal Dog Food
|
|
$8.99
|
35,000
|
11,000
|
|
$9.99
|
34500
|
11,300
|
|
$10.99
|
34,000
|
11,500
|
|
$11.99
|
33,000
|
12,000
|
|
$12.99
|
30,000
|
13,000
|
|
$13.99
|
25,000
|
14,000
|
|
$14.99
|
15,000
|
15,000
|
|
$15.99
|
10,000
|
19,000
|
|
$16.99
|
5,000
|
21,000
|
a) Calculate the profit maximizing price for the RoverPlus brand taking into account the effect of the sales of Rover Plus on sales of the Royal Dog Food brand.
b) At the price calculated in Part a, what is the incremental profit over the profit earned before the introduction of the Rover Plus branded dog food.