lant, a bike manufacturer, has identified two customer segments, one that prefer
ID: 1152307 • Letter: L
Question
lant, a bike manufacturer, has identified two customer segments, one that prefers a customized bicycle and is willing to pay a higher price and ahio standardized bike but is more price sensitive. Assum another that is willing to take a e that the cost of manufacturing either m the customized segment has a demand curve of d 20,000- - 10 P? and demand from the price-sensitive standard segment is d2 40,000-30 p. What price snould Giat charge each segment if there is no capacity constraint? What is the total profit in this case? (10 points) Answer:Explanation / Answer
2.
For customized bike segment:
Q1 = 20000 – 10P1
P1 = 20000/10 - (1/10)*Q1
P1 = 2000 - .1Q1 ------ (1)
Multiply both sides of the equation by Q1 and Differentiation, will give marginal revenue MR.
P1*Q1 = 2000Q1 -.1Q1^2
MR = 2000 - .2Q
MR = MC for profit maximization
2000-.2Q = 200
Q = 1800/.2 = 9000
P1 = 2000 - .1*9000
P1 (Price of customized bike) = $1100
For standard bike segment:
Q2 = 40000 – 30P2
P2 = 40000/30 – (1/30)Q2 ----- (2)
Multiply both sides of the equation by Q2 and Differentiation, will give marginal revenue MR.
P2*Q2 = 40000*Q2/30 – (1/30)Q2^2
MR = 40000/30 – (2/30)Q2
MC = MR
200 = 40000/30 – 2Q2/30
2Q2/30 = 34000/30
Q2 = 17000
P2 = 40000/30 – 17000/30
P2 (price of standard bike) = $766.67
Net profit = (1100*9000 – 200*9000) + (766.67*17000 – 200*17000)
Net profit = $17733390
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