Price elasticity of demand in U.S. is estimated to be
and price elasticity of demand is
overseas markets. Overseas market is more elastic as comparison to the domestic market. Marginal cost is $40.
Following is the condition for equilibrium:
Elasticity of demand in overseas market is
. Marginal cost is $15 in overseas market. Following is the equilibrium price in the overseas market:
It has been proved that highly elastic demand reduces the price of output. Domestic price is higher in comparison to overseas for high elasticity of demand in overseas market.
There is no answer for this question
a) Profit maximizing price and output
Demand function for computer is estimated as follows:-
Differentiate the total revenue function
The following is the condition for profit maximization
Substitute the value of
in demand function
b) Profit Contribution
Fixed cost does not exist.
c) Calculation of profit and overhead for 10 times period and prices
d) Comparison of part (c) and (b)
Profit under the (b) is higher than the part profit contribution of part (c). The following are the profit contributions:-
e) Advantages and disadvantages of price skimming
Strategy of price skimming leads to the higher profit of firm. Maximum consumer surplus is transferred to the firm. But charging higher price may attract the new competitors. Further, it is quite cumbersome and difficult to decide the right time to reduce the price of good or service.