Consider the choice model given below: Choice Choice Probability Product 0 1 (no buy) [1+ exp(1.25...

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Consider the choice model given below: Choice Choice Probability Product 0 1 (no buy) [1+ exp(1.25 — .8p₁) + exp(1.5 — .8p₂) + exp(1.75 — .8p3) + exp(2 — .8p₁)] Product 1 Product 2 Product 3 Product 4 exp(1.25 - .8p₁) [1 + exp(1.25-8p₁) + exp(1.5 - 8p₂) + exp(1.75- 8p3) + exp(2.8p4)] exp(1.5 - 8p₂) [1 + exp(1.25.8p₁) + exp(1.5 - 8p₂) + exp(1.75 - 8p3) + exp(2 − .8p4)] exp(1.75- 8p3) [1 + exp(1.25.8p₁) + exp(1.5 - 8p₂) + exp(1.75 - 8p3) + exp(2.8p4)] exp(2 - .8p4) [1 + exp(1.25.8p₁) + exp(1.5 — .8p₂) + exp(1.75 – 8p₂) + exp(2 − .8p.)] a) Calculate the optimal prices that maximize revenues. b) What is the optimal revenue per customer? Consider the choice model given below: Choice Choice Probability Product 0 1 (no buy) [1+ exp(1.25 — .8p₁) + exp(1.5 — .8p₂) + exp(1.75 — .8p3) + exp(2 — .8p₁)] Product 1 Product 2 Product 3 Product 4 exp(1.25 - .8p₁) [1 + exp(1.25-8p₁) + exp(1.5 - 8p₂) + exp(1.75- 8p3) + exp(2.8p4)] exp(1.5 - 8p₂) [1 + exp(1.25.8p₁) + exp(1.5 - 8p₂) + exp(1.75 - 8p3) + exp(2 − .8p4)] exp(1.75- 8p3) [1 + exp(1.25.8p₁) + exp(1.5 - 8p₂) + exp(1.75 - 8p3) + exp(2.8p4)] exp(2 - .8p4) [1 + exp(1.25.8p₁) + exp(1.5 — .8p₂) + exp(1.75 – 8p₂) + exp(2 − .8p.)] a) Calculate the optimal prices that maximize revenues. b) What is the optimal revenue per customer?

Answer rating: 100% (QA)

SOLUTION a To maximize revenue we need to find the prices that maximize the choice probability for each product We can do this by taking the derivative of the choice probability with respect to the pr... View the full answer