Answered step by step
Verified Expert Solution
Question
1 Approved Answer
RET faces the following pricing problem in its international long-distance market. Essentially it has two products for calls: day calls (8 a.m. to 5 p.m.)
RET faces the following pricing problem in its international long-distance market. Essentially it has two products for calls: day calls (8 a.m. to 5 p.m.) and night calls (5 p.m. to 8 a.m.). All customers prefer day calls to night calls, i.e., everyone is willing to pay more for day calls than night calls. But people differ in their relative valuations of day and night calls. RET has found that there are two major segments: business calls (i.e., calls made for business reasons) and personal calls (i.e., calls made for personal reasons). Business callers would much prefer to make day calls over night calls - because 8 a.m. to 5 p.m. is when business is conducted - but they can make night calls if they wish to (by getting to work a little early or working late). 40% of all international phone calls are made for personal reasons. RET's marginal cost of a phone call is zero regardless of when the call is made. Assume (1) that RET faces no competition in the international long-distance market, (2) that it has enough capacity to handle any reasonabledemandsat any time, (3) that both business and personal callers are maximizing their consumer surplus when choosing a time to call, and (4) that the length of a phone call is unaffected by when the call is placed or for what purpose the call is placed. 1. Suppose RET finds that business callers are willing to pay up to $1 a minute for day calls, but only 50 cents a minute for night calls and personal callers are willing to pay 85 cents a minute for day calls, but only 60 cents a minute for night calls. Develop a profit- maximizing pricing policy for RET. (Assume that quantity discounts are not being considered.) 2. Consider the following change to part (1). Business callers are now willing to pay up to $1.20 a minute for day calls. (Everything else remains the same.) What is the profit maximizing policy now? 3. Consider the problem as in part (2), but now assume that business callers are willing to pay up to 65 cents for night calls. (Everything else remains the same). What is the profit- maximizing policy now
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started