1 Answer | Add Yours
The producer has two types of customers: 100 of type A willing to pay $10 per unit and 50 of type B willing to pay $8 unit. There is no increase in the quantity bought by either of the customers if there is a change in the price.
A uniform price has to be determined at which the company should price its products. It is assumed that the aim is to maximize the revenue of the company at the price chosen.
If the company prices the product at a price more than $8 but less than $10 there is no increase in the quantity bought by the Type A customers but the company loses out the Type B customers. At $10, the revenue is 100*10 + 0 = $1000. The price has to be decreased to $8 per unit if all the customers are to be expected to buy the product. At a price of $8, the revenue is $8*150 = $1200. A decrease in price below $8 leads to a fall in revenue and so does an increase in price. The revenue is maximized at $8 per unit.
The company should price the product at $8 per unit to to maximize revenue.
We’ve answered 319,817 questions. We can answer yours, too.Ask a question