Your brewery (White Horse) has just developed a new beer, a full-body, rich, dar

Question

Your brewery (White Horse) has just developed a new beer, a full-body, rich, dark stout. The beer is consumed by market segments of equal size, namely, Generation X’ers and Millenials. X’ers would be willing to pay up to $500 for a keg of the stout while Millenials would pay $150 (they like IPA’s). A water-down version of the beer is worth $100 to Millenials, but is worth $200 to X’ers. The beer has already been brewed and marginal production costs are zero. Write down expresions that describe for which prices Millenials will buy the water-down version (PW) and X’ers will buy the dark stout (PD). Write down expresions for the prices that make X’ers pick the dark stout and Millenials pick the water-down version. Find (PD) and (PW).

Explanation / Answer

Ans: Given : two generations GenX & Millenials

Willingness to Pay for stout:
GenX=$500 & Millenials = $150

Worth of waterdown version:
GenX=$200 & Millenials = $100

The prices at which Millenials will buy the waterdown version is any price <=$100

GenX's will buy the stout at any price less than or maximum upto $500

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