Question

demand for people over the age 40 is:o =15−5p. The estimated demand for people under the age of 30 is: = 8 − 2p. Note that age is correlated with unobservable characteristics like income. MC per standardised item is $1.The current pricing model is to charge a single price per unit of standardised item; Compute this price and profit. The second part of the plan is to consider adjusting the pricing strategy to consider the different demands. You still only charge a linear price, but now offer different prices to each group of customers. Compute these prices and profits. Describe how you would implement this pricing strategy and comment on any difficulties that might arise.

Answer 1

To compute the single price per unit of a standardized item, you need to calculate the equilibrium price and quantity. For the second part of the plan, where different prices are offered to each group, you would determine the price for each group separately. Implementing this pricing strategy may require collecting data on customers' ages and income levels.

Step-by-step explanation:

To compute the single price per unit of a standardized item, you need to calculate the equilibrium price and quantity. Equilibrium is achieved when the quantity demanded (Qd) equals the quantity supplied (Qs). In this case, the demand for people over the age of 40 is given by o = 15 - 5p and the demand for people under the age of 30 is = 8 - 2p. Equating Qd and Qs, you can solve for the equilibrium price (p) and quantity (Q).

For the second part of the plan, where different prices are offered to each group, you would determine the price for each group separately. The price for people over the age of 40 should be set based on the demand equation o = 15 - 5p, and the price for people under the age of 30 should be set based on the demand equation = 8 - 2p. You can calculate the optimal prices and profits for each group.

Implementing this pricing strategy may require collecting data on customers' ages and income levels to determine the appropriate prices. This could be done through surveys or customer registration forms. Difficulties that may arise include accurately segmenting customers into the correct age groups, ensuring that prices are set at a level that maximizes profit, and managing any potential backlash or complaints from customers who feel the pricing is unfair.