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What prices should you charge to maximize profit

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Question Durable Goods: Selling of Suits Your firm's market research has identified two types of consumers: the fashion-oriented con- sumers and the not-so fashion-oriented consumers. It is known that the fashion-oriented consumers have a relatively high valuation. At the start of the season, this type is willing to pay $750 for a new suit.

However, at the end of the season, these consumers are only willing to pay $450. On the other hand, the less fashion-oriented consumers are willing to pay $375 for suits regardless of when they purchase their suit. There are 100 consumers of each type and each consumer is willing to pay for at most one suit. Suppose you can charge two, possibly different, prices, one at the start of the season and one at the end of the season.

a) Suppose consumers are not forward looking (i.e., suppose they are unaware that prices may drop at the end of the season). What prices should you charge to maximize profit?

b) Suppose consumers are forward looking (i.e., suppose they can anticipate the firm will optimally drop the price when it is in its interest to do so). What prices should you charge?

c) How would your answers to questions (a) and (b) change if there are 150 fashion-oriented consumers and only 50 not-so fashion-oriented consumers?

Reference no: EM133340290

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