You were hired by a local business to help customize and price their products. The firm is a monopoly and currently sells two products. Suppose that demand for the products are given by a logistic demand system with mean utilities for the respective products of a1 = 0.1 and a2 = 0.2. 1. What are the revenue - maximizing prices for these two products? Suppose that the firm has done extensive experimentation, and they believe they have a good idea of the underlying characteristics that drive demand for their products. Specifically, the mean utility for each product is driven by two characteristics: a1 = b1*1 +b2*0 and a2 = b1*1 + b2*0.05, where the tastes of consumers for the characteristics are b 10.1 and b2 = 2 and the numbers scaling them are the current value of the characteristics. Suppose that these characteristics are also related to costs, such that mc1 = c1*1 + c2*0 = 0.01 and mc2 = c1*1 + c2*0.05 = 0.06, where c1 = 0.01 and c2 = 0.01. 2. What are the profit - maximizing prices for these two products as currently configured? The firm is considering altering the attributes of its products and wants your help. Specifically, they're willing to slightly adapt one of the characteristics and then optimally re- price both goods. 3. If you could increase characteristic 1 or 2 by 0.1 units, what would you recommend to the firm if the goal is to maximize profits? Please explain your findings and include MATLAB code for the calculations in 1, 2, and 3.
You were hired by a local business to help customize and price their products. The firm is a monopoly and currently sells two products. Suppose that demand for the products are given by a logistic demand system with mean utilities for the respective products of a1 = 0.1 and a2 = 0.2. 1. What are the revenue - maximizing prices for these two products? Suppose that the firm has done extensive experimentation, and they believe they have a good idea of the underlying characteristics that drive demand for their products. Specifically, the mean utility for each product is driven by two characteristics: a1 = b1*1 +b2*0 and a2 = b1*1 + b2*0.05, where the tastes of consumers for the characteristics are b 10.1 and b2 = 2 and the numbers scaling them are the current value of the characteristics. Suppose that these characteristics are also related to costs, such that mc1 = c1*1 + c2*0 = 0.01 and mc2 = c1*1 + c2*0.05 = 0.06, where c1 = 0.01 and c2 = 0.01. 2. What are the profit - maximizing prices for these two products as currently configured? The firm is considering altering the attributes of its products and wants your help. Specifically, they're willing to slightly adapt one of the characteristics and then optimally re- price both goods. 3. If you could increase characteristic 1 or 2 by 0.1 units, what would you recommend to the firm if the goal is to maximize profits? Please explain your findings and include MATLAB code for the calculations in 1, 2, and 3.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Transcribed Image Text:You were hired by a local business to help customize and price their products. The firm is a monopoly and currently sells
two products. Suppose that demand for the products are given by a logistic demand system with mean utilities for the
respective products of a1 = 0.1 and a2 = 0.2. 1. What are the revenue - maximizing prices for these two products?
Suppose that the firm has done extensive experimentation, and they believe they have a good idea of the underlying
characteristics that drive demand for their products. Specifically, the mean utility for each product is driven by two
characteristics: a1 = b1*1 +b2*0 and a2 = b1*1 + b2*0.05, where the tastes of consumers for the characteristics are b
10.1 and b2 = 2 and the numbers scaling them are the current value of the characteristics. Suppose that these
characteristics are also related to costs, such that mc1 = c1*1 + c2*0 = 0.01 and mc2 = c1*1 + c2*0.05 = 0.06, where
c1 = 0.01 and c2 = 0.01. 2. What are the profit - maximizing prices for these two products as currently configured?
The firm is considering altering the attributes of its products and wants your help. Specifically, they're willing to slightly
adapt one of the characteristics and then optimally re- price both goods. 3. If you could increase characteristic 1 or 2 by
0.1 units, what would you recommend to the firm if the goal is to maximize profits? Please explain your findings and
include MATLAB code for the calculations in 1, 2, and 3.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps with 1 images
Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education