There are two competing Internet-based providers of medical information suitable for patients. ProPatient currently char
Posted: Mon May 02, 2022 8:04 am
There are two competing Internet-based providers of medical
information suitable for patients. ProPatient currently charges
$150 per year to subscribers of its service, which helps patients
learn more about their medical conditions. Its competitor, AskUs
Health, currently charges $125 for a similar service. The current
level of advertising by ProPatient is $2,500,000. ProPatient has
tracked its volume of subscribers as a function of its price, the
price of AskUs services, and of its own marketing expenditures
designed to promote the service. The marketing department at
ProPatient estimated its demand relationship based on these data.
Here is the result: QP = 120,000 - 900PP + 400PA +.02M where QP =
quantity of subscribers to ProPatient PP = price charged by
ProPatient PA = price charged by AskUs Health M P = Marketing
expenditures by ProPatient (all values of the independent variables
are in dollars) ProPatient’s fixed cost to establish and maintain
the business is $10,000,000 plus marketing expenses per year. In
addition, there is an incremental expense of $5 for each
subscriber.
a) What is the price elasticity of demand for ProPatient under
the current conditions?
b) What is marginal revenue for ProPatient under the current
conditions?
c) Given the values of the other variables, is ProPatient
charging the optimal price? If not, what is the optimal price?
information suitable for patients. ProPatient currently charges
$150 per year to subscribers of its service, which helps patients
learn more about their medical conditions. Its competitor, AskUs
Health, currently charges $125 for a similar service. The current
level of advertising by ProPatient is $2,500,000. ProPatient has
tracked its volume of subscribers as a function of its price, the
price of AskUs services, and of its own marketing expenditures
designed to promote the service. The marketing department at
ProPatient estimated its demand relationship based on these data.
Here is the result: QP = 120,000 - 900PP + 400PA +.02M where QP =
quantity of subscribers to ProPatient PP = price charged by
ProPatient PA = price charged by AskUs Health M P = Marketing
expenditures by ProPatient (all values of the independent variables
are in dollars) ProPatient’s fixed cost to establish and maintain
the business is $10,000,000 plus marketing expenses per year. In
addition, there is an incremental expense of $5 for each
subscriber.
a) What is the price elasticity of demand for ProPatient under
the current conditions?
b) What is marginal revenue for ProPatient under the current
conditions?
c) Given the values of the other variables, is ProPatient
charging the optimal price? If not, what is the optimal price?