Reflection on Canine Grooming Salon Profits
How will the changes in pricing affect the profits of Elegant Dogs and Dazzling Dogs?
Which of the following is true?
a. Profits at both companies will decrease.
b. Dazzling Dogs' profits will decrease by more than Elegant Dogs' profits will increase.
c. Dazzling Dogs will suffer a net loss.
d. Elegant Dogs' profits will increase by more than Dazzling Dogs' profits will decrease.
Final answer:
After fact-checking the changes in profits for Elegant Dogs and Dazzling Dogs, it becomes evident that Dazzling Dogs' profits will decrease by more than Elegant Dogs' profits will increase. Hence, the correct answer is option b.
Explanation:
First, we calculate the initial profits for both Elegant Dogs and Dazzling Dogs. The initial profit for Elegant Dogs is (4,500 * $35) - $45,000 = $112,500 per year. The initial profit for Dazzling Dogs is (4,500 * $35) - (4,500 * $10) = $112,500 per year.
After Elegant Dogs lowers its price, it serves 6,500 customers (4,500 + 2,000), and its profit becomes (6,500 * $25) - $45,000 = $117,500 per year. Dazzling Dogs loses 2,000 customers and serves 2,500 customers, its profit becomes (2,500 * $35) - (2,500 * $10) = $62,500 per year.
Therefore, the correct answer is (b) Dazzling Dogs' profits will decrease by more than Elegant Dogs' profits will increase. The profit at Elegant Dogs increases by $5,000 ($117,500 - $112,500), while the profit at Dazzling Dogs decreases by $50,000 ($112,500 - $62,500). Dazzling Dogs' decrease is greater than Elegant Dogs' increase.