There are two types of consumers of X-box video game systems. The first type of consumer is highly eager to purchase the newest game systems. Their demand is
= 60,000 - 100P P = 600 - 0.01 . The resulting marginal revenue function is
MR(QN) = 600 - 0.02 QN. After the first month the X-box systems are on the market, the first-type demand goes to zero at any price. The second type of consumer is more sensitive to price and will be the same one month after the systems are on the market. Their demand is
= 300,000 - 1,000P P = 300 - 0.01 . The resulting marginal revenue function is
MR(QW) = 300 - 0.02 QW. The marginal cost to the manufacturers is constant at $75. If the X-box manufacturer initially sets the system price at $337.50, calculate their producer surplus. Do any second type customers purchase the X-box system at the initial release? Sometime after the initial release, the manufacturer lowers the price to $187.50. If only the second type of customer purchases the system at this later date, calculate producer surplus from these sales. Why does the X-box manufacturer have an incentive to charge a high relative price at initial release and then lower the price considerably sometime later?
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