
The profits that result from charging client with given per unit

Explanation of Solution
Fixed Cost = $15000
Marginal Cost = $1000
Inverse demand function
Under
So, putting
Profits are -$2500.
Theprofits earned by charging client $1450 for first 10units and for additional units amount charged is $1225 is ascertained as follows:
When for the first 10 units amount charged is $1450 and for additional units amount charged is $1225. This is the case of second-degree price discrimination.
Quantity demanded at price $1450 can be calculated as
Quantity demanded at a price $1225 can be calculated as
Total units demanded at $1225 is 55 units but 10 units were sold at $1450. So, additional 45 units will be sold at $1225.
Profit is calculated as total cost subtracted by the total revenue.
Therefore, the profit earns is -$375.
The strategy that can be used for higher profits isexplained below:
An optimal and feasible recommendation will be Two-part pricing strategy.
Under this strategy, there would be a fixed fee plus a per unit fee for each unit of the software installed and maintained.
Per unit fee will be equal to $1000 which is a marginal cost
Quantity demanded at this price will be calculated as
Optimal fixed fee =
=
Profit under two-part pricing strategy will be $25000 - $15000
= $10000.
Profit under two-part pricing strategy is $10000.
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Chapter 11 Solutions
Gen Combo Managerial Economics & Business Strategy; Connect Access Card
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