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Revenue Management Quiz 3, Chapter 3
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the price-response function specifies
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how the demand of a product changes as a function of its price
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Created by
kayesarah
Spring 2021
Terms in this set (10)
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
(p-c)d(p)
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