Podcast
Questions and Answers
What is the mean value ($ ext{μ}$) of the price for consumers' valuations of the iPhone 13?
What is the mean value ($ ext{μ}$) of the price for consumers' valuations of the iPhone 13?
- $700
- $800 (correct)
- $750
- $900
What role does the standard deviation ($ ext{σ}$) play in the distribution of valuations for the iPhone 13?
What role does the standard deviation ($ ext{σ}$) play in the distribution of valuations for the iPhone 13?
- It indicates a lower range of valuations.
- It reflects the variability in consumers' valuations. (correct)
- It measures the number of consumers.
- It determines the fixed price of the product.
In a normal distribution, what happens to the number of consumers when the price of a substitute increases?
In a normal distribution, what happens to the number of consumers when the price of a substitute increases?
- The number of consumers fluctuates randomly.
- The number of consumers remains constant.
- The number of consumers increases. (correct)
- The number of consumers decreases proportionally.
Which linear demand function is indicated by the provided quantity and price data?
Which linear demand function is indicated by the provided quantity and price data?
What is the significance of the symbol $Q_ℓ$ in the demand function context?
What is the significance of the symbol $Q_ℓ$ in the demand function context?
What is the equation that represents the linear demand function for the iPhone 13?
What is the equation that represents the linear demand function for the iPhone 13?
What does the parameter $eta$ in a linear demand function primarily indicate?
What does the parameter $eta$ in a linear demand function primarily indicate?
If the price of the iPhone 13 is increased by $1, how many fewer consumers will buy it?
If the price of the iPhone 13 is increased by $1, how many fewer consumers will buy it?
What distribution is used to characterize consumer valuations for the iPhone 13?
What distribution is used to characterize consumer valuations for the iPhone 13?
What is the total number of consumers indicated in the demand function for the iPhone 13?
What is the total number of consumers indicated in the demand function for the iPhone 13?
In the context of the demand function, what does the parameter $ heta$ represent?
In the context of the demand function, what does the parameter $ heta$ represent?
What is the effect of an increase in price on the quantity demanded according to the demand function?
What is the effect of an increase in price on the quantity demanded according to the demand function?
When the price of the iPhone 13 is set at $800, what is the initial quantity demanded?
When the price of the iPhone 13 is set at $800, what is the initial quantity demanded?
What is the primary formula used to determine quantity in the provided linear demand function for the iPhone 13?
What is the primary formula used to determine quantity in the provided linear demand function for the iPhone 13?
What does the normal distribution represent in the context of consumer valuation for the iPhone 13?
What does the normal distribution represent in the context of consumer valuation for the iPhone 13?
Which value represents the mean ($ar{x}$) of the consumer valuations in the normal distribution for the iPhone 13?
Which value represents the mean ($ar{x}$) of the consumer valuations in the normal distribution for the iPhone 13?
What factor is directly influencing the quantity demanded ($Qℓ$) of the iPhone 13 in the given linear functions?
What factor is directly influencing the quantity demanded ($Qℓ$) of the iPhone 13 in the given linear functions?
How does the standard deviation ($ ext{σ}$) affect the valuation distribution among consumers for the iPhone 13?
How does the standard deviation ($ ext{σ}$) affect the valuation distribution among consumers for the iPhone 13?
Why might modern firms like Amazon and Uber utilize linearized demand models?
Why might modern firms like Amazon and Uber utilize linearized demand models?
What is likely the total number of consumers considered in the analysis of demand for the iPhone 13?
What is likely the total number of consumers considered in the analysis of demand for the iPhone 13?
In the given demand function, which factor contributes to the decreasing quantity supplied as price increases?
In the given demand function, which factor contributes to the decreasing quantity supplied as price increases?
Flashcards
Linearized demand functions
Linearized demand functions
Mathematical equations representing the relationship between the quantity demanded of a good and its price.
iPhone 13 valuations
iPhone 13 valuations
Estimated prices for the iPhone 13, based on consumer demand.
Quantity demanded (Q)
Quantity demanded (Q)
The amount of a product that consumers are willing and able to buy at a specific price.
Price (P)
Price (P)
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Normal Distribution (𝜇, 𝜎)
Normal Distribution (𝜇, 𝜎)
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Substitute price
Substitute price
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Number of consumers (N)
Number of consumers (N)
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Demand Modeling by Firms
Demand Modeling by Firms
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Demand Curve
Demand Curve
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Linear Demand Function
Linear Demand Function
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Slope of the Demand Curve
Slope of the Demand Curve
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Consumer Valuations
Consumer Valuations
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Normal Distribution
Normal Distribution
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Impact of Price on Demand
Impact of Price on Demand
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Predicting Consumer Demand
Predicting Consumer Demand
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Study Notes
One Minute Warning Times
- 60, 50, 40, 30, 20, 10, 9, 8, 7, 6, 5, 4, 3, 2, 1
Reminders & Announcements
- Office hours and recitations are underway
- Times and rooms/Zoom links are posted on Canvas
- Office hours: Wednesday 2:50pm-3:50pm (Dinan 332)
- First set of practice questions are due this week
- Covers Lectures 1 & 2, due Friday night at 11:59pm
Managerial Economics BEPP 6120: Differentiated Products: Choice and Demand
- Differentiated products have different values for consumers.
- Different firms can have different prices.
- Undifferentiated products have the same value for consumers.
- Undifferentiated products have one market price in equilibrium.
Oligopoly
- Consumers value undifferentiated products equally.
- One market price in equilibrium for undifferentiated products.
- Consumers value differentiated products differently.
- Different firms can have different prices for differentiated products.
Outline
- Choosing Between Two Options
- Valuation Space
- Dividing Valuation Space by Purchasing Behavior
- General and Linearized Demand Systems
Reservation Values Revisited
- Consumer reservation value (v) and price (p) determine purchasing decisions.
- If v > p, the consumer buys.
- If v < p, the consumer doesn't buy.
- If v = p, the consumer is indifferent.
- A new model is needed to handle more complicated scenarios.
Relevant Options
- Buy one unit at price p.
- Don't buy any at all.
- Buy one unit from Firm A at price PA.
- Buy one unit from Firm B at price PB.
- Don't buy at all.
- Consumer considers basic cell plan from Verizon or AT&T.
Valuations
- Each consumer has a valuation (vᵢ) for each option.
- Consumers choose the option maximizing consumer surplus (vᵢ - pᵢ).
- Non-purchase option's (Don't Buy) surplus is zero.
- If multiple options maximize surplus, the consumer is indifferent.
Valuation Space
- BEPP 6110 model uses an ordered bar chart to determine demand based on reservation values.
- The model becomes more complex when consumers have values for multiple goods.
- Consumers are represented as points in a graph for valuations of AT&T and Verizon.
The "Swarm" of Consumers
- Consumers are represented as points on a graph.
- The points represent the consumer's valuations for AT&T and Verizon.
Different Market Types in Valuation Space
- Visual representation of different market types.
- Consumers' values for multiple goods are displayed on a graph.
Starlight Candy Service
- Good one: everyone gets a peppermint starlight.
- Good two: everyone gets a licorice starlight
- Valuations depend on each consumer's preferences.
Where Do Consumers Buy Nothing?
- Consumers prefer nothing over AT&T if their valuation for AT&T is less than or equal to the price.
- Consumers prefer nothing over Verizon if their valuation for Verizon is less than or equal to the price.
Where Do Consumers Buy From Verizon?
- Consumers prefer Verizon to nothing if their valuation for Verizon is greater than or equal to the price for Verizon.
- Consumers prefer Verizon to AT&T if their valuation for Verizon is greater than or equal to their valuation for AT&T plus the difference between the prices.
Where Do Consumers Buy From AT&T?
- Consumers prefer AT&T to nothing if their valuation of AT&T is greater than or equal to the price for AT&T.
- Consumers prefer AT&T to Verizon if their valuation of AT&T is greater than or equal to their valuation for Verizon plus the difference in the prices.
A Map of Consumer Purchasing Decisions
- The graph shows the consumers' choices given their valuations and prices.
Building Demand From Consumer Valuations
- The quantity demanded for Verizon is the sum of the consumers in the defined area of the graph.
Properties of Imperfect Substitutes Demand
- Demand for a product decreases with its own price and increases with a substitute's price.
Linearizing One-Good Demand Functions
- The general demand function for a single product is linear.
- The demand function has a slope and a intercept.
- Consumers' valuations are normally distributed.
Linearizing Two-Good Demand Systems
- Demand system for two products can be linearized.
- Linearized demand system uses reference prices.
Reference Quantities
- Reference quantities are demands at reference prices.
Own- and Cross-Price Responses
- Own price response is greater than cross-price responses.
- It depends on how many potential customers are on the fence to buy the product
Marginal Consumers
- Marginal consumers are those that change purchasing behavior in response to small changes in price or valuation.
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