BEE1034 Week 7
More Realistic and Complex Pricing
Managerial Economics: A Problem Solving Approach (2 nd Edition)
Luke M. Froeb,
Brian T. McCann,
Website, managerialecon.com
© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part,
except for use as permitted in a license distributed with a certain product or service or otherwise on a password-
protected website for classroom use.
, Introduction
• Earlier in the module we introduced the profit-
maximising pricing rule, MR = MC.
• In practice we observe situations where firms appear not
to be pricing according to this rule.
• Why not? Is the rule wrong? Do firms not really care
about profits? Might there be other ways to max profits?
• MR = MR applies to a situation where a firm sells a
single product. In practice, the situation may be more
complex.
, Harry Potter and the Deathly Hallows
• The Harry Potter book series by J.K. Rowling (an Exeter
alumnus) is the best-selling book series in history.
• When the final book in the series was released in 2007,
the publisher, Scholastic Publishing, suggested a retail
price in the US of $34.99.
• The wholesale price of the book was $18.99.
• Instead of using MR=MC, or (P-MC)/P = 1/|e|, US
booksellers Barnes and Noble, Amazon, Costco, and
Walmart all priced the book at less than $20.
• These retailers do max profits, so why price so low?
More Realistic and Complex Pricing
Managerial Economics: A Problem Solving Approach (2 nd Edition)
Luke M. Froeb,
Brian T. McCann,
Website, managerialecon.com
© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part,
except for use as permitted in a license distributed with a certain product or service or otherwise on a password-
protected website for classroom use.
, Introduction
• Earlier in the module we introduced the profit-
maximising pricing rule, MR = MC.
• In practice we observe situations where firms appear not
to be pricing according to this rule.
• Why not? Is the rule wrong? Do firms not really care
about profits? Might there be other ways to max profits?
• MR = MR applies to a situation where a firm sells a
single product. In practice, the situation may be more
complex.
, Harry Potter and the Deathly Hallows
• The Harry Potter book series by J.K. Rowling (an Exeter
alumnus) is the best-selling book series in history.
• When the final book in the series was released in 2007,
the publisher, Scholastic Publishing, suggested a retail
price in the US of $34.99.
• The wholesale price of the book was $18.99.
• Instead of using MR=MC, or (P-MC)/P = 1/|e|, US
booksellers Barnes and Noble, Amazon, Costco, and
Walmart all priced the book at less than $20.
• These retailers do max profits, so why price so low?
