A manufacturer of microwaves has discovered that male shoppers have little value

Question

A manufacturer of microwaves has discovered that male shoppers have little value for microwaves and attribute almost no extra value to an auto-defrost feature. Female shoppers generally value microwaves more than men and attribute greater value to the auto-defrost feature. There is little additional cost to incorporating an auto defrost feature. Since men and women cannot be charged different prices for the same product, the manufacturer is considering introducing two different models. The manufacture has determined that men value a simple microwave at $70 and one with auto-defrost at $80 while women value a simple microwave at $80 and one with auto-defrost at $150. If there is an equal number of men and women, what pricing strategy will yield the greatest revenue? What if women compromise the bulk of microwave shoppers?

Explanation / Answer

Let us have x number of men and women.

Lets price simple model at 70 so that revenues=2x*70=140x

If auto frost model is priced at 150then men will not buy and only women will, so that revenues=150x

If auto frost model is priced at 80 then men will also buy with women , so that revenues=80*2x=160x

Clearly the combination of 70 and 80 yields maximum revenues

Let us have .8x number of men and 1.2x women.

Lets price simple model at 70 so that revenues=(.8x+1.24x)*70=140x

Lets price simple model at 80,sothat only women buy it and revenues=(1.2x)*80=160x

If auto frost model is priced at 150 then men will not buy and only women will, so that revenues=1.2x*150=180x

If auto frost model is priced at 80 then men will also buy with women , so that revenues=80*(.8x+1.2x)=160x

Clearly the combination of 80 for simple model and 150 for auto frost yields maximum revenues.

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