II. Problem 1. Tennis Products, Inc., produces three models of high-quality tennis rackets. The following table contains recent information on the sales, costs, and profitability of the three models:...

Extracted text: II. Problem 1. Tennis Products, Inc., produces three models of high-quality tennis rackets. The following table contains recent information on the sales, costs, and profitability of the three models: Average Quantity Sold (Units/Month) 15,000 5,000 10,000 Variable, Cost per Contribution Current Price Total Margin Per Unit Contribution Model Revenue Unit Margin* $225,000 85,000 250,000 $560,000 A $30 $450,000 175,000 450,000 $1,075,000 $15 $15 B 35 18 17 C 45 20 25 Total * Contribution to fixed costs and profits. The company is considering lowering the price of Model A to $27 in an effort to inçrease the number of units sold. Based on the results of price changes that have been instituted in the past, Tennis Products' chief economist estimates the arc price elasticity of demand to be -2.5. Furthermore, she estimates the arc cross elasticity of demand between Model A and Model B to be approximately 0.5 and between Model A and Model C to be approximately 0.2. Variable costs per unit are not expected to change over the anticipated changes in volume. Evaluate the impact of the price cut on the (i) total revenue, and (ii) contribution margin of Model A. Based on this analysis, should the firm lower the price of Model A? a. Evaluate the impact of the price cut on the (i) total revenue, and (ii) contribution margin for the entire line of tennis rackets. Based on this analysis, should the firm lower the b. price of Model A?