What is multiproduct pricing Describe the four interrelation

What is multi-product pricing? Describe the four interrelationships, and provide an example of each situation.

Solution

Multi-product pricing When the firm produces two or more products

Case 1: products are complements in terms of demand à an increase in the quantity sold of one will bring about an increase in the quantity sold of the other

Case 2: products are substitutes in terms of demand à an increase in the quantity sold of one will bring about a decrease in the quantity sold of the other

Case 3: products are joined in production àproducts produced from one set of inputs

Case 4: products compete for resources à using resources to produce one product takes those resources away from producing other products