Question
In: Operations Management
Sony Music Publishing Company wants to decide the price of Saylor Twift’s next album. The company...
Sony Music Publishing Company wants to decide the price of Saylor Twift’s next album. The company conducted a survey of 1000 customers to estimate the willingness-to-pay (WTP) of the customers. The following table summarizes the results of the survey:
|
WTP |
Frequency |
|
$19.99 |
150 |
|
$18.99 |
200 |
|
$17.99 |
350 |
|
$16.99 |
150 |
|
$15.99 |
150 |
|
Total |
1000 |
a) If Sony decides to charge the customers $18.99 per album, then what will be the revenue per 1000 potential customers?
b) What is the best price to maximize the revenue?
Solutions
Expert Solution
If a customer is willing to pay $19.99 for an album, they would definitely buy it for less than $19.99.
Therefore at the pricing of 18.99, people willing to buy at 19.99, and 18.99 both will buy the album.
Customers at price point of $18.99 = 150+ 200 =350
Hence we have to calculate the cumulative frequency for customers who are willing to buy an item at a certain price point as shown in the figure below.
Also, Revenue = Price point * No. of albums sold.
For example at price 18.99, Revenue = 18.99 * 350 = $ 6646.5
We get the following table by performing similar calculations for other price points.
| Price | WTP | Cumulative WTP out of 1000 customers | Revenue |
| 19.99 | 150 | 150 | 2998.5 |
| 18.99 | 200 | 350 | 6646.5 |
| 17.99 | 350 | 700 | 12593 |
| 16.99 | 150 | 850 | 14441.5 |
| 15.99 | 150 | 1000 | 15990 |
a. According to the table, Revenue per 1000 customers at 18.99 is $ 6656.5
b. According to the table, Revenue is the highest ($ 15990) at a price point of $ 15.99
keosha answered 3 months agoRelated Solutions
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