Author Question: What are the key steps for analyzing Demand functions based on Regression results? What will be ... (Read 49 times)

RYAN BANYAN · **on:** Jul 1, 2018

What are the key steps for analyzing Demand functions based on Regression results?

What will be an ideal response?

Question 2

Firms that make game systems like Playstation and Nintendo typically charge a price close to average cost on the game system itself, and do not change that price even when the systems are scarce or demand increases.

Why might this be a profit-maximizing strategy?

amcvicar · **Reply #1 on:** Jul 1, 2018

Answer to Question 1

Check signs and magnitudes; compute elasticity coefficients; determine statistical significance.

Answer to Question 2

These firms are selling two products, the systems and the games. These are complementary products. If they increase the price of the systems, they reduce the demand for games (and games are repeat purchases rather than one-time purchases). Additionally, the system is the hook, or the loss leader that draws customers in. Once you have the system, the switching cost of moving to another system is significant. Thus the systems are cheap, and the games are expensive.