pricing the ipod. ipod demand and revenue table
Post on 15-Jan-2016
249 views
TRANSCRIPT
![Page 1: Pricing the iPod. iPod Demand and Revenue Table](https://reader036.vdocuments.net/reader036/viewer/2022081420/56649d495503460f94a255c8/html5/thumbnails/1.jpg)
Pricing the iPod
![Page 2: Pricing the iPod. iPod Demand and Revenue Table](https://reader036.vdocuments.net/reader036/viewer/2022081420/56649d495503460f94a255c8/html5/thumbnails/2.jpg)
![Page 3: Pricing the iPod. iPod Demand and Revenue Table](https://reader036.vdocuments.net/reader036/viewer/2022081420/56649d495503460f94a255c8/html5/thumbnails/3.jpg)
iPod Demand and Revenue Table
Quantity Price Revenue6 $700 $4,200
10 $500 $5,00012 $450 $5,40017 $400 $6,80026 $350 $9,10046 $300 $13,80058 $250 $14,50074 $200 $14,80090 $150 $13,500
100 $50 $5,000
![Page 4: Pricing the iPod. iPod Demand and Revenue Table](https://reader036.vdocuments.net/reader036/viewer/2022081420/56649d495503460f94a255c8/html5/thumbnails/4.jpg)
iPod Demand and Marginal Revenue curves
![Page 5: Pricing the iPod. iPod Demand and Revenue Table](https://reader036.vdocuments.net/reader036/viewer/2022081420/56649d495503460f94a255c8/html5/thumbnails/5.jpg)
iPod Demand and Marginal Revenue curves
![Page 6: Pricing the iPod. iPod Demand and Revenue Table](https://reader036.vdocuments.net/reader036/viewer/2022081420/56649d495503460f94a255c8/html5/thumbnails/6.jpg)
iPod Price and Profits with Marginal Cost of $100
Quantity Price Revenue Total Cost Profit6 $700 $4,200 $600 $3,600
10 $500 $5,000 $1,000 $4,00012 $450 $5,400 $1,200 $4,20017 $400 $6,800 $1,700 $5,10026 $350 $9,100 $2,600 $6,50046 $300 $13,800 $4,600 $9,20058 $250 $14,500 $5,800 $8,70074 $200 $14,800 $7,400 $7,40090 $150 $13,500 $9,000 $4,500
100 $50 $5,000 $10,000 -$5,000
![Page 7: Pricing the iPod. iPod Demand and Revenue Table](https://reader036.vdocuments.net/reader036/viewer/2022081420/56649d495503460f94a255c8/html5/thumbnails/7.jpg)
Marginal cost of $100
![Page 8: Pricing the iPod. iPod Demand and Revenue Table](https://reader036.vdocuments.net/reader036/viewer/2022081420/56649d495503460f94a255c8/html5/thumbnails/8.jpg)
iPod Price and Profits with Marginal Cost of $50
Quantity Price Revenue Total Cost Profit6 $700 $4,200 $300 $3,900
10 $500 $5,000 $500 $4,50012 $450 $5,400 $600 $4,80017 $400 $6,800 $850 $5,95026 $350 $9,100 $1,300 $7,80046 $300 $13,800 $2,300 $11,50058 $250 $14,500 $2,900 $11,60074 $200 $14,800 $3,700 $11,10090 $150 $13,500 $4,500 $9,000
100 $50 $5,000 $5,000 $0
![Page 9: Pricing the iPod. iPod Demand and Revenue Table](https://reader036.vdocuments.net/reader036/viewer/2022081420/56649d495503460f94a255c8/html5/thumbnails/9.jpg)
iPod Price and Profits with Marginal Cost of $25
Quantity Price Revenue Total Cost Profit6 $700 $4,200 $150 $4,050
10 $500 $5,000 $250 $4,75012 $450 $5,400 $300 $5,10017 $400 $6,800 $425 $6,37526 $350 $9,100 $650 $8,45046 $300 $13,800 $1,150 $12,65058 $250 $14,500 $1,450 $13,05074 $200 $14,800 $1,850 $12,95090 $150 $13,500 $2,250 $11,250
100 $50 $5,000 $2,500 $2,500
![Page 10: Pricing the iPod. iPod Demand and Revenue Table](https://reader036.vdocuments.net/reader036/viewer/2022081420/56649d495503460f94a255c8/html5/thumbnails/10.jpg)
What do they really cost?
• 4 GB Nano is $149
• 8 GB Nano is $199
![Page 11: Pricing the iPod. iPod Demand and Revenue Table](https://reader036.vdocuments.net/reader036/viewer/2022081420/56649d495503460f94a255c8/html5/thumbnails/11.jpg)
Why doesn’t Apple charge more?
• Our class estimates suggest that with MC of
$25-$50, Apple would maximize profits by charging $250.
• Is there a reason for Apple to want bigger volume of iPod sales?
• Hint: What about selling music downloads?
![Page 12: Pricing the iPod. iPod Demand and Revenue Table](https://reader036.vdocuments.net/reader036/viewer/2022081420/56649d495503460f94a255c8/html5/thumbnails/12.jpg)
If demand for a monopolist’s product is inelastic at the current price, he could
increase his profits by reducing output, even if his marginal cost is very small.
1. True
2. False
![Page 13: Pricing the iPod. iPod Demand and Revenue Table](https://reader036.vdocuments.net/reader036/viewer/2022081420/56649d495503460f94a255c8/html5/thumbnails/13.jpg)
Why is that?
• If demand is inelastic, then a small price increase and the resulting quantity decrease must increase revenue.
So by cutting back quantity he increases revenue. Reducing quantity certainly won’t increase his costs, so his profit must increase.
![Page 14: Pricing the iPod. iPod Demand and Revenue Table](https://reader036.vdocuments.net/reader036/viewer/2022081420/56649d495503460f94a255c8/html5/thumbnails/14.jpg)
A monopolist faces a demand curve with equation P=100-Q. What is the
equation for its marginal revenue?
A) MR=200-Q
B) MR=100-Q
C) MR=100-2Q
D) MR=200-2Q
E) MR=100-Q2
![Page 15: Pricing the iPod. iPod Demand and Revenue Table](https://reader036.vdocuments.net/reader036/viewer/2022081420/56649d495503460f94a255c8/html5/thumbnails/15.jpg)
With linear demand, MR is a straight line with same intercept, twice as steep
as demand. If demand equation is P=100-Q, Marginal revenue is
MR=100-2q 100
10050
Green Line Demand Curve 100-Q
Pink Line MR curve,100-2Q
![Page 16: Pricing the iPod. iPod Demand and Revenue Table](https://reader036.vdocuments.net/reader036/viewer/2022081420/56649d495503460f94a255c8/html5/thumbnails/16.jpg)
A monopolist faces a demand curve with equation P=100-Q. Its total costs are $10Q. What are its
marginal costs?
A) $10 for all quantities
B) $10+Q
C) $(100/Q)-1
D) $100-2Q
E) $100-Q
![Page 17: Pricing the iPod. iPod Demand and Revenue Table](https://reader036.vdocuments.net/reader036/viewer/2022081420/56649d495503460f94a255c8/html5/thumbnails/17.jpg)
Marginal cost is the extra cost of producing one more unit if output is Q. Therefore marginal cost is
$10(Q+1)-$10Q=$10.
Calculus answer:
Marginal cost is derivative of $10Q with respect to Q, which is $10.
![Page 18: Pricing the iPod. iPod Demand and Revenue Table](https://reader036.vdocuments.net/reader036/viewer/2022081420/56649d495503460f94a255c8/html5/thumbnails/18.jpg)
A monopolist faces a demand curve with equation P=100-Q. Its total costs are $10Q. How much should it produce to maximize its
profits?A) Q=100
B) Q=50
C) Q=45
D) Q=30
E) Q=25
![Page 19: Pricing the iPod. iPod Demand and Revenue Table](https://reader036.vdocuments.net/reader036/viewer/2022081420/56649d495503460f94a255c8/html5/thumbnails/19.jpg)
How do we find that?
To maximize profits, the monopolist sets marginal revenue
equal to marginal cost. The equation is 100-2Q=10. The
solution is Q=45.
![Page 20: Pricing the iPod. iPod Demand and Revenue Table](https://reader036.vdocuments.net/reader036/viewer/2022081420/56649d495503460f94a255c8/html5/thumbnails/20.jpg)
A monopolist faces a demand curve with equation P=100-Q. Its total costs are $10Q. What price
should it charge to maximize profits?
A) P=60
B) P=55
C) P=50
D) P=45
E) P=40
![Page 21: Pricing the iPod. iPod Demand and Revenue Table](https://reader036.vdocuments.net/reader036/viewer/2022081420/56649d495503460f94a255c8/html5/thumbnails/21.jpg)
How do we find that?
We found that the profit maximizing quantity is Q=45.
Since the demand curve is P=100-Q, it must be that the price
is 100-45=55 when profits are maximized.
![Page 22: Pricing the iPod. iPod Demand and Revenue Table](https://reader036.vdocuments.net/reader036/viewer/2022081420/56649d495503460f94a255c8/html5/thumbnails/22.jpg)
Diagram for profit maximizing monopoly
100
100
50
Green Demand Curve 100-Q
Pink MR curve,100-2Q
55
Blue Marginal Cost Curve
45
![Page 23: Pricing the iPod. iPod Demand and Revenue Table](https://reader036.vdocuments.net/reader036/viewer/2022081420/56649d495503460f94a255c8/html5/thumbnails/23.jpg)
A monopolist faces a demand curve with equation P=100-Q. Its total costs are $10Q. How much
profits can it make?
A) $ 2025
B) $200
C) $1800
D) $600
E) $950
![Page 24: Pricing the iPod. iPod Demand and Revenue Table](https://reader036.vdocuments.net/reader036/viewer/2022081420/56649d495503460f94a255c8/html5/thumbnails/24.jpg)
Diagram for profit maximizing monopoly
Maximum profit is $45x45=$2025.
100
100
Green Demand Curve 100-Q
Pink MR curve,100-2Q
55
Blue Marginal Cost Curve
Profit
45
10
![Page 25: Pricing the iPod. iPod Demand and Revenue Table](https://reader036.vdocuments.net/reader036/viewer/2022081420/56649d495503460f94a255c8/html5/thumbnails/25.jpg)
And On to our Lecture