F11MKT300_Pricing3 with notes

F11MKT300_Pricing3 with notes - Pricing(Lecture 3 Finding...

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Pricing (Lecture 3) Finding Optimal Prices Benefits of Charging Different Prices to Different Customer Segments
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Demand Curve for an Airplane Price Sales Volume $100 Variable Cost 150 $400 A B 200 Price 5 0 200 - = . Q
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Steps in Finding Optimal Price 1. Express profit function in terms of price 2. Differentiate profit function with respect to price 3. Set derivative equal to 0, and solve for price
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Optimal Price price . Q - = 5 0 200 Q - = Π ) 100 p ( p p K p p p 50 5 . 0 20 200 ) 5 . 0 200 ( ) 100 ( 2 + - - = - - = Π 0 50 200 = + - = Π p p d d 250 * = p
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Maximum Profits Price Q $250 $100 15 0 The Maximum Profit Rectangle for Single Price 75 $400 Price 5 0 200 - = . Q 20 0
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But…2 Problems with charging only one price q Leaving money on the table q Some customers are willing to pay more q Passing-up Profit q Some potential customers were not served even though the firm could have served them at prices above the variable cost
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Triangles Price Sales
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This note was uploaded on 12/18/2011 for the course MKT 300 taught by Professor Barnes during the Fall '08 term at University of Wisconsin.

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F11MKT300_Pricing3 with notes - Pricing(Lecture 3 Finding...

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