PPP 801 Economics

Marry ID: 123456789

Pricing and Fundraising at the Childrens Mental Health Network

Strategy 1: Providing 2,000 of Kids Screened, and $16,400 for Endowment.
Under the strategy 1, CMHN will totally collect
$45,500 from three sources, spend $29,000, and then
donate the total profits $16,400 to other special
projects (See Table 1).
In order to maximize CMHNs income, the price
of the services will be $6, where the marginal revenue
is $5 and equals the marginal cost (See Appendix 1),
leading CMHN to earn $12,000. Although CMHN also
can earn $12,000 if the services price is 7, its main
goal is to maximize the number of kids screening.

Table 1 Strategy 1
Quantity (Q)
2,000
Price (P)
6
R: Earned Income
12,000
22,400
R: Private Donations
R: Grants from the state
11,000
Total Revenue
45,400
C: Earned Income
20,000
C: Private Donations
8,000
C: Grants from the state
1,000
Total Costs
29,000
Profits
16,400
Endowment
16,400
* Q: the number of kids screened.
* P: the services fee

Thus, the price of the services will be $6, and CMHN can provide the services for nearly 2,000
kids.
CMHN will spend $1,000 on applying for the jumbo grant from the state, and gain
$11,000. Regarding the private donations from the foundations, while CMHN can earn $23,500
from either spending $6,000 or $8,000, it is better for CMHN to spend $8,000 and broaden its
donation resources, benefits the organization in the long term. Besides, due to the governments
grant will crowd out 10% of the private donation, CMHN will lose $1,100 in private donation
from $23,500 to $22,400.
Taking the strategy 1, CMHNs total cost is $29,000, including $10,000 of overhead,
$10,000 of the kids screened ($5 for each individual child), $8,000 of fundraising expenditure,
and $1,000 in personnel time to write.
Strategy 2: Providing 7,000 of Kids Screened, and $400 for Endowment.
Followed by the Strategy 2, CMHN has to maximize the number of screening, even these is
nothing left for endowment. The way CMHN can do is to maximize the profits from the private
donation and the state. CMHN will operate the same way as the strategy 1 does in the aspect of
private donations and the grants, and get $22,400 and $11,000 respectively (See Table 2). Thus,
like the strategy 1, the profits from the private donation and the state will be $24,400.

PPP 801 Economics

Marry ID: 123456789

For the services charge, CMHN will set the

price at $3 and earn $21,000. This income cannot
cover the overhead and the cost of screened and
cause the deficit $24,000. But this deficit will be
balanced by the profits from the private donations
and the state, $24,400, and left $400 for endowment.
Overall, CMHN can provide nearly 7,000 of
kids screened and left $400 for endowment. This

Table 2 Strategy 2
Quantity (Q)
7,000
Price (P)
3
R: Earned Income
21,000
R: Private Donations
22,400
R: Grants from the state
11,000
Total Revenue
54,400
C: Earned Income
45,000
C: Private Donations
8,000
C: Grants from the state
1,000
Total Costs
54,000
Profits
400
Endowment
400

strategy will make CMHN totally earn $54,400 and

spend $54,000.
Strategy 3: Providing 3,500 of kids screened, and left nothing for endowment.
The goal of strategy 3 is to maximize the number of kids screened but reject to accept the
private

donations

(See

Table

3).

From

this

perspective, CMHN only can earn profits from the

income and the grants from the state. The maximum
profits of grants from the state will be $10,000,
totally covering the deficit $10,000 as the price of the
services is $5. In other words, when the fee is $5, the
revenue is $17,500, the cost of screened is $27,500,
and the deficit will be $10,000, the $10,000 from the
state can balance the CMHNs deficit.

Table 3 Strategy 3
Quantity (Q)
3,500
Price (P)
5
R: Earned Income
17,500
R: Private Donations
0
R: Grants from the state
11,000
Total Revenue
28,500
C: Earned Income
27,500
C: Private Donations
0
C: Grants from the state
1,000
Total Costs
28,500
Profits
0
Endowment
0

Therefore, based on the strategy 3, CMHN will

set the price of services at $5, provide nearly 3,500 of
screening for kid, and nothing left for the
endowment.
Strategy 4: Providing 5,000 of kids screened, and
$500 for Endowment.
Just like the strategy 2 and the strategy 3, the
strategy 4 also focuses on maximizing the number of
kids screened. However, unlike the strategy 2 and the
strategy 3, the strategy 4 make CMHN give up
2

Table 4 Strategy 4
Quantity (Q)
5,000
Price (P)
4
R: Earned Income
20,000
R: Private Donations
23,500
R: Grants from the state
0
Total Revenue
43,500
C: Earned Income
35,000
C: Private Donations
8,000
C: Grants from the state
0
Total Costs
43,000
Profits
500
Endowment
500

PPP 801 Economics

Marry ID: 123456789

accepting the grants from the state and choose to earn $23,500 from the private donations (See
table 4). The money received from the private donations minus the cost of fundraising will left
$15,500. This can cover part of the cost of kids screened. Thus, under the strategy 4, CMHN can
provide the price of kids screened at $4, accepting nearly 5,000 kids to be screened, and left $500
for endowment.
Evaluation
In short, all four directors have four different strategies for operating CMHN and, thus, lead
to different price of the services, number of kids screened, and amount of endowment (See Table
5). Which strategy is the best for CMHN? In contrast, the strategy 1 can provide the highest
amount, $16,400, for special projects and endowment, while the strategy 2 can accept the highest
number, nearly 7,000, of kids to be screened. Furthermore, if CMHN refuses to receive either the
donations from the foundation (Strategy 3) or the grants from the states (Strategy 4), the number
of kids screened and endowment will decrease.
Therefore, to choose the best way to operate the organization, it is critical for CMHN to
clarify its main goalwhether to maximize the number of kids screened, or to maximize the
amount of endowment.
Table5: Four Strategies Cost and Profits
Strategy 1 Strategy 2 Strategy 3 Strategy 4
Quantity (Q)
Price (P)

2,000
6

7,000
3

3,500
5

5,000
4

12,000
23,500
9,900

21,000
23,500
9,900

17,500
0
11,000

20,000
23,500
0

45,400

54,400

28,500

43,500

20,000
8,000
1,000

45,000
8,000
1,000

27,500
0
1,000

35,000
8,000
0

Total Costs

29,000

54,000

28,500

43,000

Profits
Endowment

16,400
16,400

400
400

0
0

500
500

R: Earned Income
R: Private Donations from the Foundations
R: Grants from the state
Total Revenue
C: Earned Income
C: Private Donation
C: Grants from the state

PPP 801 Economics

Marry ID: 123456789

Appendix 1
A. Earned Income
Price

10

0P

Quantity

250

500

1000

2000

3500

5000

7000

11000

15000

20000 Q

Revenue

2250

4000

7000

12000

17500

20000

21000

22000

15000

0 P*Q

Variable Cost

1250

2500

5000

10000

17500

25000

35000

55000

75000

100000 Q*5

Fixed Cost

10000

10000

10000

10000

10000

10000

10000

10000

10000

10000

Total Cost

10000

11250

12500

15000

20000

27500

35000

45000

65000

85000

1000

1500

2000

2000

-5000

-14000

-33000

-60000 -100000 P*Q-Q*5

-10000

-9000

-8500

-8000

-8000

-10000

-15000

-24000

-43000

-70000 -110000 P*Q-Q*5-O

Marginal Cost

Marginal Revenue

5 3.666667 1.666667

0.5

0.25

-1.75

-3

Average Cost

45

25

15

7 6.428571 5.909091 5.666667

5.5

Average Variable Cost

- 138.8889

312.5 714.2857 1666.667

3500

6250 11666.67

27500

75000

Average Fixed Cost

- 1111.111

1250 1428.571 1666.667

2000

2500 3333.333

5000

10000

Revenue
Profit

10 7.857143

B. Private Donations From the Foundations

Revenue

0 10000 17000 21500 23500 24000 Expected Donations

Variable Cost

2000

Total Revenues

8000 13000 15500 15500 14000

4000

6000

8000 10000 Fundraising Expenditure

C. Grants From the State

Revenue
Variable Cost

7500 11000 States Grant

750 1000 Fee

Total Revenues 6750 10000 SG-F

4

10000 O (Overhead)
110000