As discussed in class, when a single firm sells two complementary goods, they should lower their prices on the goods compared to the independent profit-maximizing prices to increase profits (this is known as cross-subsidization). Alternatively, when a firm sells two substitute goods, they should raise their prices. Assume your Marketing team (correctly) estimates your demand curve as Q₁-13172-17.2P-4.5P+3001 +0.15P +2.3Pop. "A", "B", and "C" are subscripts representing 3 different products. "I" indicates the yearly consumer income. "Pop" indicates the population of the city in which the customer lives. How many of the following statements does this estimate imply? ● ● If your company sells both A and B, to increase its profits it should lower prices compared to the independent profit-maximizing prices. If your company sells both A and C, to increase its profits it should lower prices compared to the independent profit-maximizing prices. If your company sells both B and C, to increase its profits it should lower prices compared to the independent profit-maximizing prices. a. 1 of the statements are implied by the estimate. b. 2 of the statements are implied by the estimate. 3 of the statements are implied by the estimate. d. None of the statements are implied by the estimate. C.
As discussed in class, when a single firm sells two complementary goods, they should lower their prices on the goods compared to the independent profit-maximizing prices to increase profits (this is known as cross-subsidization). Alternatively, when a firm sells two substitute goods, they should raise their prices. Assume your Marketing team (correctly) estimates your demand curve as Q₁-13172-17.2P-4.5P+3001 +0.15P +2.3Pop. "A", "B", and "C" are subscripts representing 3 different products. "I" indicates the yearly consumer income. "Pop" indicates the population of the city in which the customer lives. How many of the following statements does this estimate imply? ● ● If your company sells both A and B, to increase its profits it should lower prices compared to the independent profit-maximizing prices. If your company sells both A and C, to increase its profits it should lower prices compared to the independent profit-maximizing prices. If your company sells both B and C, to increase its profits it should lower prices compared to the independent profit-maximizing prices. a. 1 of the statements are implied by the estimate. b. 2 of the statements are implied by the estimate. 3 of the statements are implied by the estimate. d. None of the statements are implied by the estimate. C.
Chapter11: Profit Maximization
Section: Chapter Questions
Problem 11.13P
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Transcribed Image Text:As discussed in class, when a single firm sells two complementary goods, they should lower their
prices on the goods compared to the independent profit-maximizing prices to increase profits (this is
known as cross-subsidization). Alternatively, when a firm sells two substitute goods, they should raise
their prices. Assume your Marketing team (correctly) estimates your demand curve as
Q₁ =13172-17.2P-4.5PB +3001 +0.15P+2.3Pop. "A", "B", and "C" are subscripts
representing 3 different products. "T" indicates the yearly consumer income. "Pop" indicates the
population of the city in which the customer lives. How many of the following statements does this
estimate imply?
●
●
If your company sells both A and B, to increase its profits it should lower prices compared to
the independent profit-maximizing prices.
If your company sells both A and C, to increase its profits it should lower prices compared to
the independent profit-maximizing prices.
If your company sells both B and C, to increase its profits it should lower prices compared to
the independent profit-maximizing prices.
a.
1 of the statements are implied by the estimate.
b. 2 of the statements are implied by the estimate.
3 of the statements are implied by the estimate.
d. None of the statements are implied by the estimate.
C.
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