You currently sell the same product to both students and faculty members, and are able to prevent transfer from one group to the other. Your current prices, quantities sold, and the absolute values of the slopes of the demand curves are as follows: If your marginal cost is $1 and you are interested in maximizing your revenues, how would you adjust your prices?

Question

You currently sell the same product to both students and faculty members, and are able to prevent transfer from one group to the other. Your current prices, quantities sold, and the absolute values of the slopes of the demand curves are as follows:  If your marginal cost is $1 and you are interested in maximizing your revenues, how would you adjust your prices?

Quizplus · Accepted Answer

According to the graph, both student and faculty demand curves are elastic. This means that a decrease in price will result in an increase in quantity demanded, leading to an increase in revenue. Therefore, to maximize revenue, the company should decrease the price for the more elastic demand, which is the student demand. Hence, student prices should be decreased, and faculty prices should be increased to prevent transfer between the groups. This decision aligns with option D.

You Currently Sell the Same Product to Both Students and Faculty