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The multiproduct firm: Demand relationships and decision‐making
Author(s) -
Hill Stephen
Publication year - 1982
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.4090030207
Subject(s) - microeconomics , revenue , profit (economics) , economics , product (mathematics) , differential (mechanical device) , econometrics , mathematics , engineering , aerospace engineering , geometry , accounting
If a firm produces more than one product, the price of one may affect the demand for others. Examination of this relationship reveals that for the profit maximizing firm the price differential between products is determined by differences in costs, differences in own price and cross price elasticities and the relative revenue from each product. The introduction of advertising results in an optimal advertising budget for each product that is the weighted sum of own and cross advertising elasticities divided by the average cost per advertisement.