Share
Explore BrainMass

average price elasticity

Your firm has identified two distinct groups of consumers for its product - each which
consist of 50% of the market. Your market research suggests that group A has a price
elasticity of demand of 4. Group B has a price elasticity of demand of 2. Assume that
your marginal cost of producing your product is $10.

(1) If you could identify which the group to which each consumer belong, how would you
go about setting prices? Outline the price(s) that you would charge and suggest strategies
that you might use to implement the price(s)?

(2) If you cannot identify which each consumer belong to, how would you go about setting
prices? Outline the price(s) that you would charge and suggest strategies that you might
use to implement the price(s)?

Solution Preview

(1) If you could identify which the group to which each consumer belong, how would you go about setting prices? Outline the price(s) that you would charge and suggest strategies that you might use to implement the price(s)?

If it is possible to identify the group to which each consumer belong, the firm is able to commit price discrimination, i.e., charging different prices to different consumers.

To decide the price, we need to ...

Solution Summary

This job looks at average price elasticity and other factors.

$2.19