Question
Problem 1 Suppose that one day we have 200 units of product to sell. a) Based on our understanding of demand conditions, we estimate that
Problem 1 Suppose that one day we have 200 units of product to sell. a) Based on our understanding of demand conditions, we estimate that 400 units could be sold at $10 each or 150 units at $20 each, and that quantity demanded is approximately linear as a function of price. (For simplicity, assume that a single linear relationship holds over the full range of potential prices.) How should we price the product to maximize total revenue derived from our fixed inventory? What is the price elasticity at the optimal price level? Under the optimal price, what is the customer surplus? b) Assume that instead, the demand function is
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