Question

A manufacturer of microwaves has discovered that female shoppers have little value for microwaves and attribute almost no extra value to an auto-defrost feature. Male shoppers generally value microwaves more than women do 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 $82 and one with auto-defrost at $148, while women value a simple microwave at $66 and one with auto-defrost at $82.
Suppose the manufacturer is considering three pricing strategies:
1. Market a single microwave, with auto-defrost, at $69, to both men and women.
2. Market a single microwave, with auto-defrost, at $121, to only women.
3. Market a simple microwave to men, at $52. Market a microwave, with auto-defrost, to women at $103.
For simplicity, assume there is only 1 man and 1 woman and that if the price of a microwave is equal to an individual's willingness to pay, the individual will purchase the microwave.
Use the following table to indicate the revenue from men, the revenue from women, and the total revenue from each strategy.
Strategy Revenue from Revenue from Total Revenue from Strategy
Men Women
1. Auto-Defrost
Microwave only at $82
2. Auto-Defrost Microwave
only at $148
3. Simple Microwave at $66,
Auto-Defrost Microwave at $131
Suppose that, instead of one man and one woman, the market for this microwave consisted entirely of men. For simplicity, you can assume this means that there are two men, and no women. Under these conditions, pricing strategy_____would maximize revenue for the manufacturer.

Answer 1

Answer:

For simplicity, assume there is only 1 man and 1 woman and that if the price of a microwave is equal to an individual's willingness to pay, the individual will purchase the microwave.

• If the number of male and female buyers is the same, then the best pricing strategy is to offer 2 different microwaves (option 3). One simple and cheap microwave for women and one with auto-defrost for men.

Strategy                     Revenue           Revenue             Total Revenue

                                  from men          from women        from strategy

1. Auto-Defrost             $82                      $82                   $164

Microwave only

at $82

2. Auto-Defrost           $148                     $0                     $148

Microwave  only

at $148

3. Simple                      $131                    $66                    $197

Microwave at $66,

Auto-Defrost

Microwave at $131

Suppose that, instead of one man and one woman, the market for this microwave consisted entirely of men. For simplicity, you can assume this means that there are two men, and no women. Under these conditions, pricing strategy 2. Auto-Defrost Microwave  only at $148 would maximize revenue for the manufacturer.