Pinapple Inc. is deciding how to price its two lines of laptops, one of which is a light one for travel (which is called Light) and the other is a powerful one (called Power). These products are substitutes (consumers pick between them depending on prices). Based on the data points below, estimate a linear joint demand curve - that is, a demand curve for each product that is linear in each price:
Demand_Power = A_1 + B_1*Price_Power + C_1*Price_Light
Demand_Light = A_2 + B_2*Price_Power + C_2*Price_Light
|
Price of
Power
|
Price of
Light
|
Demand of
Power
(in thousands)
|
Demand of
Light
(in thousands)
|
|
1000
|
1000
|
15166
|
7311
|
|
1500
|
1000
|
12266
|
7387
|
|
2000
|
1000
|
10875
|
7499
|
|
2000
|
1500
|
10222
|
5992
|
|
2500
|
1500
|
7771
|
6398
|
|
3000
|
1500
|
4410
|
6210
|
|
3000
|
2000
|
5320
|
4431
|
Use your estimated demand curve to recommend prices for the two products to the CEO of Pinapple Inc. The cost of manufacturing a Light computer is $770 and the cost of manufacturing a Power computer is $930. Make sure the prices you recommend are within the ranges tested ($1000 to $3000 for the Power and $1000 to $2000 for the Light). You should also include in your report a comparison of the profit margins of the two products.