Gregory House, a Philadelphia-based management consultant, has been asked to calculate and analyze market demand for a new video game that is to be marketed to retail ( R ) and wholesale ( W ) customers over the Internet.
The client estimates fixed costs of $750,000 per year for the product, and that licensing fees and other marginal costs will be $20 per unit. The client has also provided the following annual demand information:
P R = $62.50 - $0.0005Q R
P W = $50 - $0.002Q W
Express quantity as a function of price for both retail and wholesale customers. Add these quantities together to calculate the market demand curve. Graph the retail, wholesale, and market demand curves for prices ranging from $65 to $35 per unit. Fill in the following table:
*Market Demand is Retail plus Wholesale Demand.
|
Price ($)
|
Retail Demand
|
Wholesale Demand
|
Market Demand
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Total Revenue
|
Total Cost
|
Total Profit
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65
|
|
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60
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55
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|
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50
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|
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45
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|
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40
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|
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35
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