If you have a table with prices increasing and adoption rates decreasing and need to find which price gives maximum profit, is it fine to calculate the profits at either ends (max price and minimum price) to say which one would yield highest profits or do you need to calculate profit at each price? Can you ask the interviewer if you can do the edge cases or if they would like you to calculate it for each? Will they tell you if it's unnecessary to calculate the profit for each price?
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Hey there,
I will use a tactical approach. Everytime you have an exhibit with a lot of data and calculation have a look if there is a short-cut to avoid all the calculation.
I will have a look at the numbers and trying to indentifying what worth calculationg an what not
Stupid example to understand what I am saying, if you have the following numbers:
option a) EUR 40 * 10 units
option b) EUR 20 * 19 units
You do not need to do calculation to understand which one gives you higher profit >> 20 euros is half than 40 euros, 19 units are less than the double of 10; you do not fully recover the decrease in price with the increase in units >> option A is preferrable.
This type of approach is preferrable than asking immediately to the interviewer: "should I do all the calculation?"
Hi there,
First of all, everything is case specific...so, just be careful here.
That said, I'm 95% sure that in this case you need to calculate profits at all points. Why? Demand is not uniformly elastic/inelastic. Demand curved are...curved!
Therefore, there is a reasonable chance that the midpoint of price is your optimal price/volume combination (i.e. has the largest area under the curve).
Now, if you can eyeball the #s and see that prices and volumes are uniformly decreasing, then yes you can just calculate the endpoints.
Hi, I would quickly present to the interviewer the process you are going to use and only then ask whether running the calculations
Best,
Antonello
This kind of thing must be decided on a case by case basis. Your judgment will evolve with practice.
Further, in such cases as I understand from your question - most of the time you will NOT find max total profit at the extreme ends - there are more chances of it falling in the middle.
If you can share the actual example - it will be much better.
Hi there,
In general, you cannot just calculate the profits at the extremes as the “right” price could be in the middle.
The only exception is if you notice a pattern so that the increase/decrease is perfectly proportional (eg price and quantity always increase/decrease by the same percentage for each option) but this is unlikely to be the case.
Best,
Francesco
