Question

6. Even through pork bellies trade in a perfectly competitive market, Oscar Meyer bacon enjoys strong brand loyalty that enables the company to employ pricing strategies for the product. The company is looking for a new brand manager for the bacon division, so they ask applicants to come up with a suggested pricing strategy as a way to evaluate their skills. Evaluate each idea below and recommend the one with the best chance of succeeding given the following market information. o o The combined estimated demand curve for bacon (both rural and urban) is Qd = 6515 - 715P (inverse demand is P = 9 - .0014Qd) This equation is a little off because it has to be linear The estimated demand curve for bacon in rural areas is Qd=1515 - 252.5P (inverse demand is P= 6 -.00396Qd) The estimated demand curve for bacon in urban areas is Qd = 5000 - 500P (inverse demand is P=10 - 002Qd) o o O The marginal cost of producing bacon is $4 (note: MC is constant, so MC=ATC=4.) Based on a reliable survey of over 10,000 shoppers: the average price men are willing to pay for hot dogs is $3 while the average price women are willing to pay for hot dogs is $2.50 survey the average price men are willing to pay for bacon is $7 while the average price women are willing to pay for bacon is $6. Pricing Strategy ideas presented: 1. Profit maximize using one price. 2. Bundling bacon and hot dogs for $9 3. Segmenting by Urban/Rural locations instead of charging one price for both areas. (You need to Identify the best prices to evaluate this option.)

Answer 1

bacon - combined - Qd 6515 - 7150 ural uban - z 1515- 252.5p 5000 - 500 P mc = 4. For equilibrium MR amc. - mc 24 gweni MR for combined bacon: - p 29-0.00014 Qd TR = PQ z 9Q -0.00140² MR d TR 2 9 -0.0014x2 q = 20 OQ g - Q 0.0028 MR = mc 9- 0.0098 Q = 4 5 z 0.009862 17 85.7 za 1786zQ similaily - sural areas. TR - PQ 2 6Q -0.00396 Q 2 MR . 6 - 2x0.00396 Q 2 4. KX0.00396 Qz 252.52 2 253 шам алоол - TR- PQ 2 10Q -0.002Q 2 MR 2 10 -0.002 x Q Q zu. 63 0.002 x 2 1500 a Q Demand more u for the bacon is compartively urban areas Perfectly comp elitive market combined 9-0.0014 Qz 4 5 0.0014 3571.4 ___Q- rural z 505 3000 uban 2 combined puce e P24 - 0.0014 x 357|| - Pz 14 susal puce a 6- 0.0039 6x 505 pz $4 urban puce - 10-0:00 2x pe $4. hot doa $ 30 by men o $2.5 by women bacon - - $7 $ 6 bey men ley women Pzmcz 4 A produces / auppler in perfect competition should sell the output ie bacon for $4. 1st pricing strategy will be accepted. Scanned with CamScanner