Question

You have been asked by your boss to report on the expected profits from a single
price strategy compared with a two-part pricing strategy. The estimated demand
for the firm’s product is:
Qd = 400 - 0.2P.
Per unit cost is estimated as constant at $1,000.00. Provide a report which
explains the profits from a single price profit maximizing strategy with a twopart
profit maximizing strategy involving a fixed fee plus a per unit fee. Assume
that total fixed cost is $30,000. What is the optimal fixed fee? Why does the twopart
pricing policy increase total profits? (20 marks)