You are the manager of a firm that charges customers $16 per unit for the first unit purchased, and $12 per unit for each additional unit purchased in excess of one unit. Customers can purchase only full units. The accompanying graph summarizes your relevant demand and costs.
- Identify the economic term for your firm’s pricing strategy.
- Explain in detail the conditions necessary to allow this type of strategy.
- Determine the profits you earn from this strategy. Explain your calculations.
- How much additional profit would you earn if you were able to perfectly price discriminate?
Graph for directions attached.
Correctly identifies the pricing strategy.
Adequately explains the pricing strategy.
Correctly calculates the profits earned with this pricing strategy.
Correctly calculates the potential profits that can be earned through perfect price discrimination.
Adequately explains the pricing strategy.
Correctly calculates the profits earned with this pricing strategy.
Correctly calculates the potential profits that can be earned through perfect price discrimination.
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