Should Company Launch Vegan Burger Based on Profit Analysis?
Overview
This question evaluates unit-economics and quantitative product-launch decision-making skills, focusing on contribution margin metrics, break-even analysis, profit and profit-margin calculations in the Analytics & Experimentation domain for Data Scientist roles, and is primarily a practical application of symbolic and numeric financial modeling with conceptual economic reasoning. It is commonly asked to assess how candidates translate per-unit prices, variable and fixed costs, and observed volumes into go/no-go judgments by reasoning about profitability, required volume targets, and sensitivity to cost or demand trends.
Case: Launching a Vegan Burger — Unit Economics and Go/No-Go
Context
You are evaluating whether to launch a vegan burger alongside an existing standard burger. You have been provided (or can denote) per-unit price, per-unit variable cost, and product-line fixed costs for each product.
If exact figures are not provided, use variables and compute symbolically; you may also illustrate with a small numeric example.
Given/Notation
- Standard burger: price p_s, variable cost c_s, fixed costs F_s, observed volume Q_s.
- Vegan burger: price p_v, variable cost c_v, fixed costs F_v.
Tasks
-
Compute for each product:
- Contribution margin per unit: cm = p − c
- Contribution margin ratio: cmr = cm / p
- Break-even sales volume (units): Q_be = F / cm
- Profit at volume Q: π(Q) = Q·cm − F
- Profit margin at volume Q: m(Q) = π(Q) / (Q·p)
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Using the statement “achieving the same profit margin as the standard burger requires selling 60–70% more units” for the vegan burger:
- Express the required vegan volume Q_v to match the standard burger’s profit margin m_s = m_s(Q_s).
- Assess feasibility.
- Recommend: Should the company introduce the vegan burger? Justify quantitatively (using the formulas and any provided or assumed numbers) and qualitatively.
- Name future industry or cost trends that could make entering the vegan-burger market attractive.
Hints
- Set up contribution-margin and break-even formulas.
- Discuss economies of scale, raw-material costs, and consumer-demand growth.
Solution
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