Answer :
Final answer:
Based on the market surveys suggesting that 20% of the customers would substitute spicy for salty chips and 5% would substitute it for french cheese chips, it may not be profitable for Crispy Potatoes to introduce the new product, spicy. The potential revenue loss from the substitution effect is estimated to be $5 million, while the expected revenue from spicy is $4 million. Therefore, it is advisable for Crispy Potatoes to reconsider the introduction of spicy.
Explanation:
Introducing a new product is a strategic decision for any business, and Crispy Potatoes is considering introducing a new product called spicy. Currently, the company produces and sells two versions of chips: salty and french cheese, generating $20 million in revenue each per annum.
The company expects the new product, spicy, to generate $4 million in revenue. However, market surveys suggest that 20% of the customers would substitute spicy for salty chips, and 5% would substitute it for french cheese chips.
Considering these market survey results, it is important to analyze the potential impact of introducing spicy on the overall revenue of Crispy Potatoes. If 20% of the customers who currently purchase salty chips switch to buying spicy chips, the revenue from salty chips would decrease by 20% of $20 million, which is $4 million. Similarly, if 5% of the customers who currently purchase french cheese chips switch to buying spicy chips, the revenue from french cheese chips would decrease by 5% of $20 million, which is $1 million.
Therefore, the total revenue loss from the substitution effect would be $4 million + $1 million, which is $5 million. However, the introduction of spicy is expected to generate $4 million in revenue. Considering the potential revenue loss and the expected revenue from spicy, it seems that introducing spicy may not be a profitable decision for Crispy Potatoes.
Learn more about introducing a new product: spicy here:
https://brainly.com/question/29511693
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Final answer:
Based on the market surveys suggesting that 20% of the customers would substitute spicy for salty chips and 5% would substitute it for french cheese chips, it may not be profitable for Crispy Potatoes to introduce the new product, spicy. The potential revenue loss from the substitution effect is estimated to be $5 million, while the expected revenue from spicy is $4 million. Therefore, it is advisable for Crispy Potatoes to reconsider the introduction of spicy.
Explanation:
Introducing a new product is a strategic decision for any business, and Crispy Potatoes is considering introducing a new product called spicy. Currently, the company produces and sells two versions of chips: salty and french cheese, generating $20 million in revenue each per annum.
The company expects the new product, spicy, to generate $4 million in revenue. However, market surveys suggest that 20% of the customers would substitute spicy for salty chips, and 5% would substitute it for french cheese chips.
Considering these market survey results, it is important to analyze the potential impact of introducing spicy on the overall revenue of Crispy Potatoes. If 20% of the customers who currently purchase salty chips switch to buying spicy chips, the revenue from salty chips would decrease by 20% of $20 million, which is $4 million. Similarly, if 5% of the customers who currently purchase french cheese chips switch to buying spicy chips, the revenue from french cheese chips would decrease by 5% of $20 million, which is $1 million.
Therefore, the total revenue loss from the substitution effect would be $4 million + $1 million, which is $5 million. However, the introduction of spicy is expected to generate $4 million in revenue. Considering the potential revenue loss and the expected revenue from spicy, it seems that introducing spicy may not be a profitable decision for Crispy Potatoes.
Learn more about introducing a new product: spicy here:
https://brainly.com/question/29511693
#SPJ14