13.2PriceandDemandAll things being equal·Demand foraproduct will typicallygoupasthe product's price goes downCertainproductsmoreorlesssensitivetopricechangesIngeneral thepropertyholdsDownward-slopingdemandcurvesooplAP-204Elasticily-33.00$3.00ONewpoint2.9013-6a0
13-6 13.2 Price and Demand All things being equal Demand for a product will typically go up as the product’s price goes down Certain products more or less sensitive to price changes In general the property holds Downward-sloping demand curve
Manager'sIssueWhat is the optimal priceat which revenue ismaximized?Need to characterizethe relationship betweenpricingand demand foreach productUtilize this characterizationto determinetheoptimal pricefor eachproductMayinvolvemanycomplexitiesVastquantitiesof datamayneedtobeanalyzedCompetitors'behaviormay needtobe capturedMany firms do managetoatleast approximatethis relationship13-7
13-7 Manager’s Issue What is the optimal price at which revenue is maximized? Need to characterize the relationship between pricing and demand for each product Utilize this characterization to determine the optimal price for each product May involve many complexities Vast quantities of data may need to be analyzed Competitors’ behavior may need to be captured Many firms do manage to at least approximate this relationship
Example - Single ProductManagement estimates the relationshipbetween demand, D, and price, pD=1000-0.5p>Whenthep=$1,600,D=200>Whenthep=$1,200,D=40013-8
13-8 Example – Single Product Management estimates the relationship between demand, D, and price, p D = 1,000 - 0.5p When the p=$1,600, D=200 When the p=$1,200, D=400
Price vs Revenue TablePriceDemandRevenue$250875$218,750$500750$375,000625$750$468,750500$1,000$500,000$1,250375$468.750250$1,500$375,000p=$1,600D=200D=100p=$1,800,MaximumRevenue=$500,000whenprice=$1,00013-9
13-9 Price vs Revenue Table Price Demand Revenue $250 875 $218,750 $500 750 $375,000 $750 625 $468,750 $1,000 500 $500,000 $1,250 375 $468,750 $1,500 250 $375,000 Maximum Revenue = $500,000 when price = $1,000 p=$1,600, D=200 p=$1,800, D=100
? How to get it?Demand-Price CurvePriceD=1,000-0.5pR=Dp=(1000-0.5p)pp=1,000derivativeD=500Numberof itemsp*=1000MaxR=500000How to improve the revenue further?13-10
13-10 Demand-Price Curve ？How to get it? D = 1,000 - 0.5p R=D p=(1000-0.5p)p derivative p*=1000 Max R=500000 How to improve the revenue further?