Question

Assume that you manage a firm that sells calculators. You want to sell calculators to both commercial users and home users, and so you have developed 2 types of calculators - fancy and basic calculators. Each customer type has the following valuations for each type of calculator: Home User Commercial User Fancy Calculator $100 $200 Basic Calculator $30 $50 If you have an 100 home users and 100 commercial users that at most will buy 1 calculator each, how much additional revenue does your firm generate by using the indirect price discrimination strategy described in (5) compared to just selling the fancy calculator to all users at a price of $100 and discontinuing the basic calculator? (Write answer without the dollar sign.)

Answer 1

Ans. Firm's total revenue = 100*100+200*100= 30000

Whereas if it sold only at 100, its total revenue would have been 100*200 = 20000

Thus the firm is able to generate 10000 more in revenue.