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Pisa Pizza, a seller of frozen pizza, is
considering introducing a healthier version of its pizza that will be low in
cholesterol and contain no trans fats. The firm expects that sales of the new
pizza will be $20 million per year. While many of these sales will be to new
customers, Pisa Pizza estimates that 40% will come from customers who switch to
the new, healthier pizza instead of buying the original version.
a. Assume
customers will spend the same amount on either version. What level of
incremental sales is associated with introducing the new pizza?
b. Suppose
that 50% of the customers who will switch from Pisa Pizza’s original pizza to
its healthier pizza will switch to another brand if Pisa Pizza does not
introduce a healthier pizza. What level of incremental sales is associated with
introducing the new pizza in this case?
