A manufacturer of microwaves has discovered that male shoppers have little value

Question

A manufacturer of microwaves has discovered that male shoppers have little value for microwaves and attribute almost no extra value to an auto-defrost feature. Female shoppers generally value microwaves more than men and attribute greater value to the auto-defrost feature. There is little additional cost to incorporating an auto-defrost feature. Since men and women cannot be charged different prices for the same product, the manufacturer is considering introducing two different models. The manufacturer has determined that men value a simple microwave at $70 and one with auto-defrost at $80 while women value a simple microwave at $80 and one with auto-defrost at $150. a. If there is an equal number of men and women, what pricing strategy will yield the greatest revenue? b. What if women comprise the bulk of microwave shoppers?

Explanation / Answer

Let us have x number of men and women.

Lets price simple model at 70 so that revenues=2x*70=140x

If auto frost model is priced at 150then men will not buy and only women will, so that revenues=150x

If auto frost model is priced at 80 then men will also buy with women , so that revenues=80*2x=160x

Clearly the combination of 70 and 80 yields maximum revenues

Let us have .8x number of men and 1.2x women.

Lets price simple model at 70 so that revenues=(.8x+1.24x)*70=140x

Lets price simple model at 80,sothat only women buy it and revenues=(1.2x)*80=160x

If auto frost model is priced at 150 then men will not buy and only women will, so that revenues=1.2x*150=180x

If auto frost model is priced at 80 then men will also buy with women , so that revenues=80*(.8x+1.2x)=160x

Clearly the combination of 80 for simple model and 150 for auto frost yields maximum revenues.

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