# Four key marketing decision variables are price

9-2: 2. Four key marketing decision variables are price ( P ), advertising ( A ), transportation ( T ), and product quality ( Q ). Consumer demand ( D ) is influenced by these variables. The simplest model for describing demand in terms of these variables is:

D = k – pP + aA + tT + qQ

where k, p, a, t, and q are constants. Discuss the assumptions of this model. Specifically, how does each variable affect demand? How do the variables influence each other? What limitations might this model have? How can it be improved? Solution Tip: This is an essay question and does not require calculation.

To help you to organize this week’s assignment, please complete this assignment simply by filling out the following table. All constants k, p, a, t, and q are assumed to be positive or zero.

11-8: Suppose that a car rental agency offers insurance for a week that will cost \$10 per day. A minor fender bender will cost \$1,500, while a major accident might cost \$15,000 in repairs. Without the insurance, you would be personally liable for any damages. What should you do? Clearly, there are two decision alternatives: take the insurance or do not take the insurance.
The uncertain consequences, or events that might occur, are that you would not be involved in an accident, that you would be involved in a fender bender, or that you would be involved in a major accident. Assume that you researched insurance industry statistics and found out that the probability of major accident is 0.05%, and that the probability of a fender bender is 0.16%. What is the expected value decision? Would you choose this? Why or why not? What would be some alternate ways to evaluate risk?

12-2: Suppose that the service rate to a waiting line system is 10 customers per hour (exponentially distributed). Analyze how the average waiting time is expected to change as the arrival rate varies from two to ten customers per hour (exponentially distributed).