The Pear Computer Company just developed a totally revolutionary new personal computer. It estimates that it will take competitors at least two years to produce equivalent products. The demand function for the computer is estimated to beP = 2500 - 0.0005QThe marginal (and average variable) cost of producing the computer is $900.a. Compute the profit-maximizing price and output levels assuming Pear acts as a monopolist for its product.b. Determine the total contribution to profits and fixed costs from the solution generated in Part (a).Pear Computer is considering an alternative pricing strategy of price skimming. It plans to set the following schedule of prices over the coming two years:TIME PERIOD PRICE ($) QUANTITY SOLD1 2,400 200,0002 2,200 200,0003 2,000 200,0004 1,800 200,0005 1,700 200,0006 1,600 200,0007 1,500 200,0008 1,400 200,0009 1,300 200,00010 1,200 200,000c. Calculate the contribution to profit and overhead for each of the 10 time periods and prices.d. Compare your results in Part (c) with your answers in Part (b).e. Explain the major advantages and disadvantages of price skimming as a pricing strategy.
The Pear Computer Company just developed a totally revolutionary new personal computer. It estimates that it will take competitors at least two years to produce equivalent products. The demand function for the computer is estimated to be
P = 2500 - 0.0005Q
The marginal (and average variable) cost of producing the computer is $900.
a. Compute the profit-maximizing price and output levels assuming Pear acts as a monopolist for its product.
b. Determine the total contribution to profits and fixed costs from the solution generated in Part (a).
Pear Computer is considering an alternative pricing strategy of price skimming. It plans to set the following schedule of prices over the coming two years:
TIME PERIOD PRICE ($) QUANTITY SOLD
1 2,400 200,000
2 2,200 200,000
3 2,000 200,000
4 1,800 200,000
5 1,700 200,000
6 1,600 200,000
7 1,500 200,000
8 1,400 200,000
9 1,300 200,000
10 1,200 200,000
c. Calculate the contribution to profit and overhead for each of the 10 time periods and prices.
d. Compare your results in Part (c) with your answers in Part (b).
e. Explain the major advantages and disadvantages of price skimming as a pricing strategy.
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
