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profit-maximizing price

Your marketing VP says that he believes that you could make more money by first releasing a 'limited edition' version aimed at hard-core video game players and then a few months later releasing a regular edition aimed at the general public.

He estimates the following inverse demand curves for each segment

Hard-core game players: PH = $160 - 0.003QH
General public: PG= $80 - 0.00033333QG

Your CFO estimates that the short-term cost function is the same as before:

STC(QH,QG)=$1,100,000+22(QH+QG)

As is your MC functions for each market:

MC=$22

A.Calculate the profit-maximizing price that you should charge and quantity you should sell to the hardcore game-players
B.Calculate the profit-maximizing price that you should charge and quantity you should sell to the general public
C.Calculate the revenues from selling to hard-core gamers and the revenue from selling to the general public
D.Calculate the profits that you will make from segmenting the market in this way

Solution Preview

A. Calculate the profit-maximizing price that you should charge and quantity you should sell to the hardcore game-players

Hard-core game players:
PH = $160 - 0.003QH
Total Revenue=TRH=PH*QH=(160-0.003QH)*QH
TRH=160QH-0.003QH^2
Marginal Revenue=MRH=d(TRH)/d(QH)=160-0.006QH
For Profit maximization Put ...

Solution Summary

The profit-maximizing prices are assessed.

$2.19