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Mentor

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Estimating sensitivities to price
The availability of an analytic demand function is a powerful tool for pricing analysis. For example, with the demand function it is now possible to calculate each product's elasticity with respect to price. Since the elasticity of demand to price is just the percentage change in demand per percentage change in price, the elasticity is just the quantity of the demand for the product with respect to its price.
Price elasticities are an important source of information about how a market is likely to react to changes in price. They can be used to determine which products will have large changes in demand and which will have relatively small changes for a fixed percentage change in price.
This idea can be taken one step further. Suppose that our client has several products in the market and wants to estimate how changing the price of one will affect the demand of another. This cross-pricing effect can be represented as a cross-elasticity, defined as the percentage change in the demand of one product per percentage change in the price of another. The cross-elasticity of the demand of the product to the price of the other product is the derivative of the demand of the first product with respect to the price of the second product. These cross-elasticities can be calculated analytically from a demand function and so can be reported as a direct output of the conjoint analysis study.
Finding the optimal price
The availability of a multi-product demand function along with elasticities and cross-elasticities raises the possibility of calculating an optimal price.
Finding the optimal price is just a question of finding the price that causes the above equations 3 to equal zero. There are many sophisticated techniques in the arsenal of operations research for solving this type of problem.
The best approach is to build a simple model of how

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