Suppose the firm is considering investing $20 million in a new marketing campaign. If the price is $65,000/vehicle, they estimate they would sell an additional 2,000 vehicles; If the price is $50,000/vehicle they estimate they would sell an additional 3,000 vehicles. Calculate the company's profits under both scenarios.
Profit = (Price - Variable Cost) x Quantity - (Fixed Costs + Marketing Costs)
Profit @ $65,000 per vehicle
Total Profit = (65,000 - 45,000) x (15,000 + 2,000) - 300,000,000 - 20,000,000
Total Profit = $20,000,000
Profit @ $50,000 per vehicle
Total Profit = (50,000 - 45,000) x (60,000 + 3,000) - 300,000,000 - 20,000,000
Total Profit = -$5,000,000