Consumer Behavior: The Law of Demand and Its ­Effect on Pricing

The Law of Demand

This intent of this textbook is to introduce the manager to innovative pricing strategies that can increase a firm’s profit. We will begin by reviewing the basic economic concepts that lead to a single profit-maximizing price. This is based on the assumption that a firm produces a single good and is trying to determine the best price to charge. In setting a price, the firm must consider the law of demand. To derive the law of demand, assume that Moe is going to the local high school football game on a Friday night. He has $3.75 in his pocket. For simplicity sake, assume that hot dogs and Cokes are priced at $1.25 each. Moe goes to the concession stand ...

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