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Quantitative Assignment Case Solution & Answer

Quantitative Assignment Case Solution

Part 2: No, this price would not maximize the profitability for the firm and the reason for this is that the sales volume for the firm would decline significantly in the winter season. This is evident by the break-even analysis performed. According to the break even analysis the firm should be charging a price of $ 108 per child in the winter season however, the company is charging a price of $ 136 per child which is too high when compared to the prices in the other seasons. The profit margin is too high here. This is going to result in the decline in demand and lost sales for the company. On the other hand, the company would be able to maximize its profitability based upon the price set for the other three reasons. This is because the firm has set zero profit margins as shown by the same $ 91 price per child for all 3 seasons under break even analysis.

Question 3: Pricing of Printers & Ink Cartridges

Part 1: The demand curve for the base product with single ink cartridge is shown below. A negative relationship could be seen between the value per bundle and the quantity which in this case is the total number of the hospitals.

Part 2: The profit maximizing price for the printers for segment 1, segment 2 and segment 3 are $ 997, $ 773 and $ 549 respectively. These prices have been calculated by computing the present value of the economic benefits enjoyed by the customers. The present value has been computed using a cost of capital of 5%. The estimated life for each printer is 6 years therefore; the present value factor has been calculated for 6 years. The calculations are shown in the excel spreadsheet and the attached appendix.

Part 3: The profit maximizing price for printer and the ink cartridges as a tied good for segment 1, segment 2 and segment 3 are $ 1440, $ 1048 and $ 701 respectively. These prices have been calculated by computing the present value of the economic benefits enjoyed by the customers. The present value has been computed using a cost of capital of 5%. The estimated life for each printer is 6 years. The last cartridge would be purchased in 5th year but its economic benefits would be enjoyed in 6th year therefore, the present value factor has been calculated based on 6 years. The calculations are shown in the excel spreadsheet and the attached appendix.

Part 4: Price discrimination or Price differentiation is the pricing strategy where different prices are charged by the firm for the same products and services in different markets. The pricing strategy for the printer and the ink cartridge as a tied good in part 3 above create price discrimination, because the company is charging higher prices in the same three segments of the market where the firm was previously charging lower prices. Price discrimination strategy is adopted by a monopoly firm which is also the case here. It has also been stated that there is no other comparable competitors in the market selling the same type of printer.

            Furthermore, the type of the price discrimination strategy which has been adopted by the firm is the first degree price discrimination. This is because the firm is well aware of the economic value of its printers and replacement ink cartridges therefore, the firm knows the maximum price the customers are willing to pay for the tied good. Therefore, through this strategy the firm is transforming the surplus of the consumers into the revenues for the firm……………….

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