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price and profit calculations

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1. You have estimated demand for the Sand Hill Journal Online to be different for Stanford students and venture capitalists on Sand Hill Road. You are proud of having come up with the demand functions and go in to visit with your CEO. You present the following demand functions:
Demand of Stanford students: QS = 100-P
Demand of venture capitalists: QV = 300 - 2P

Instead of congratulating you and sending you on your way, she immediately asks you the following questions. Assume that the cost function is TC = 9,000 + 10Q

A. What price should I charge for subscriptions if I want to set a single price?
B. What if I could somehow set a different price for Stanford students what price should I charge them? Will that change the price I charge the VC's?
C. Which should I do - one price or two?
D. Are consumers getting a better deal with one price or two?
E. If I think it costs $500 to create a separate marketing system to separate and enforce different pricing, should I do it?
F. There is a risk of losing some business if I charge separate prices - some of those cheapskate VCs will pose as Stanford students to get the discount. What percentage of them can do this before I have to cut off a Stanford discount?
G. (Qualitative answer.) You suddenly realize that your demand estimates might have some uncertainty in them. How might you change the amount of surplus you give to the two types because of this?

2. Instead of enforcing different prices for students and venture capitalists because you concluded that too many of the VCs would claim to be students, she wants to come up with two versions of the Sand Hill Road Journal. The first will be the high quality version with up to the minute venture deals and the other only reports deals a week later. Marginal cost is zero.

There are 45 VCs who are willing to pay $80 per month for the high quality journal and $50 for the low quality journal. There are 55 students willing to pay $35 for the high quality journal and $30 for the low quality journal.

What would you recommend to your boss - 1 version or 2? If 1 version, high quality or low? Explain why (show price and profit calculations).

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Solution Summary

This posting shows price and profit calculations.