The objective of this project is to determine the price sensitivity of golf club demand at the Links company. The

company overall objective is to determine at which price would the company be able to maximize its profits.

This influence diagram is a graphical representation of the factors that influence company profit.

For this example, the mathematical representation is a very simple and straight forward formula. Price will determine the

end demand. Price multiplied by demand will determine the company revenues. To determine the total cost for all units

demanded, assuming that all units produced are sold, units demanded multiplied by unit cost. Subtract the unit cost from

the revenue to find company profit.

Company Profit = (Units Demanded X Unit Price) – (Units Demanded X Unit Cost)

To test the relationship between price and demand, three curves were utilized to determine the best fitting demand curve

for the data given. To determine which curve is the best fit, the data was charted in a scatter plot chart and then each

curve’s trend line was superimposed to determine the demand trendline for each curve. After each curve’s demand

trend line was determined, the predicated value was compared to the actual demand to determine the absolute

percentage error for each month. After completing the absolute percentage error for all three curves, the mean

absolute percentage error was calculated for each curve. The curve with the lowest mean percentage error will be

the fit for the relationship between the demand and price.

After comparing the mean absolute errors for the three curves, the power curves demand trendline fit the actual demand

price relationship the closet and therefore will be utilized to determine the company’s demand curve.

Demand curve as determine by the power curve trendline:

Demand = (5,871,064 x Unit Price) ^-1.9082

Cost = Demand x 250

Company Profit = (Units Demanded X Unit Price) – (Units Demanded X Unit Cost)

To determine the maximum company profit, the price of the golf clubs was incremented form $260 to $750. Using the

price, demand curve, and cost formula, the maximum company profit was determined.

Using the data created, the best price to maximize company profit is $530. At this price level company profit would

equal $10,412.

To test the model, and to view the behind the scenes calculations and regression results, go to the following link:

Golf Club Demand

This model is a very simplistic model. In practice, there are a number of other factors that influence demand other than

price. To find the actual demand curve, one must consider every factor that influence demand including all endogenous

and exogenous factors. This model also limits cost to $250 per unit, in reality cost will be directly related to the number

of units produced. As product increases, economies of scale can be achieved lower unit cost.

The company can use this model to determine the company’s golf club demand. By changing the price of their golf clubs,

the company can determine which price will maximize company profit.