Problem 1

FootWear, a shoe manufacturer, has identified two customer segments; one that prefers

customized designer shoes and is willing to pay a higher price and another that is willing to take standard

shoes but are more price sensitive. Assume that the cost of manufacturing either shoes is $500. Demand

from the customized segment has a demand relationship of d1 = 50000 - 25p1 and demand from the pricesensitive

segment is d2 = 80000 - 50p2. What price should Footwear charge each segment if its goal is to

maximize profits? What is the total profit? If TwoWheels were to charge a single price over both segments,

what should it be? How much increase in profits does differential pricing provide

Consider the shoe manufacturer, FootWear, in problem 1. Now assume that a designer shoe

pair costs $700 to manufacture, whereas a standard shoe pair costs $500 to manufacture, with all the other

data as in problem 1. What price should FootWear charge each segment if its goal is to maximize profits?

What is the total profit? If FootWear were to charge a single price over both segments, what should it be?

How much increase in profits does differential pricing provide?