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# Pricing with Market Power

Prepare a 400- to 700-word report that describes the profit-maximizing prices Aveta Labs should charge for Taziclor in Europe and the United States. Include the following in your report:

Identify the prices that maximize profits in Europe and the United States.

Explain why the prices and price-cost margins (i.e., Lerner indexes) are different in each market; in particular, explain how the price sensitivity in each market relates to the price level.

Critique the suggestions from Brendan Flaherty and Jason Womack, as described in the e-mail from Michael Dellucci.

#### Solution Preview

The profit maximizing price in the United States is \$12. When the price of Tanziclor is \$12 the quantity sold in the US market is 5070, the total revenues is \$60,836, the fixed cost is \$8,000, the variable cost is \$10,139, the total cost is \$18,139, the marginal revenue is \$2.00, the Marginal cost is \$2.00 and the profit is \$49,697. The profit maximizing level is the one where the marginal cost is equal to marginal revenue and in this case the marginal cost of \$2.00 is equal to the marginal revenue \$2.00. Also this level of price is within the acceptable range of \$2 to \$15.

The profit maximizing price in the Europe is \$8. When the price of Tanziclor is \$8 the quantity sold in the Europe market is 3,590, the total revenues is \$28,717, the fixed cost is \$5,000, the variable cost is \$10,769, the total cost is \$15,769, the marginal revenue is \$3.00, the Marginal cost is \$3.00 and the profit is \$12,948. The profit maximizing level is the one where the ...

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\$2.19