Question
You are in charge of an electric car company. Your marketing department surveyed wealthy consumers to determine the features those consumers want in a car.
You are in charge of an electric car company. Your marketing department surveyed wealthy consumers to determine the features those consumers want in a car. The engineers have designed the car to have all those features and you plan to target it to the wealthy consumer segment and charge a high price. Your summer intern suggests selling a second model at a lower price to medium income consumers because she thinks it will increase the company's profit. (The variable cost of making the car is fairly low compared to total cost.) Explain the economic difficulty that arises if the firm chooses to sell a second model. How does its design impact that difficulty? Use intuition from our discussion of second degree price discrimination.
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