Revenue Management Quiz 3, Chapter 3

the price-response function specifies

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the price-response function specifies

how the demand of a product changes as a function of its price

the satiating price of a good is

the price of a good at which the demand equals zero

the price-response functions are assumed to satisfy the following properties

nonnegative, continuity, differentiability and monotonically decreasing

the reservation price is

the maximum amount a customer is willing to pay for a good

the surplus for a customer and a product is

the difference between the willingness to pay and the price of the product

in price and revenue optimization, where p is the price of the product, c is the incremental cost of the product, d(p) is the price-response function, and d'(p) is the derivative of the price-response function, the total contribution is given by

at the optimal price p* obtained by maximizing the total contribution, the contribution margin ratio is equal to

the reciprocal of the price elasticity

if a seller has a product sold at a price for which the marginal revenue, i.e., , is greater than the marginal cost, i.e., , the supplier can increase his contribution by

increasing price

for continuous, monotonically decreasing and differentiable price-response functions, the revenue maximizing price is always

less than the contribution maximizing price

for a linear price-response function, the willingness to pay distribution is

the uniform distribution