Question
Suppose the drug company is setting two different prices for two different periods. In the first period, the company will price low in order to
Suppose the drug company is setting two different prices for two different periods. In the first period, the company will price low in order to build reputation/interest, and in the second period, they will capitalize on that. Demand for year 1 (1) and year 2 (2) are 1=10051 2=1/10 (10052) In other words, the more you sell in the first year, the bigger the payoff in the second year. If the goal of the firm is to maximize total profits: =1!+22. Hint: Start with year 2, treating ! As fixed. Then, find the ! That maximizes total profit. What price will the firm choose to maximize profits?
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