Netflix is the world’s leading streaming entertainment service with over 209 million subscribers in over 190 countries (July 2021 ). Netflix started in 1997 as a DVD mail rental business. In 2007, the company shifted its business model and decided to go digital with the introduction of streaming media. Customers can now access a wide range of movies, TV series, and original Netflix content for an affordable, no-commitment monthly fee.

Netflix is considering launching a new, innovative product onto the Namibian market and is trying to decide on the right launch price for the product. The product’s expected life is three years. Given the high level of costs that have been incurred in developing the product, Netflix wants to ensure that it sets its price at the right level and has therefore consulted a market research company to help it do this. The research, which relates to similar but not identical products launched by other companies, has revealed that at a price of N$60, annual demand would be expected to be 250 000 units. However, for every N$2 increase in selling price,

demand would be expected to fall by 2 000 units and for every N$2 decrease in selling price, demand would be expected to increase by 2 000 unis

A forecast of the annual production costs would be incurred by Netflix in relation to the new products are as follows:

**REQUIRED**

a)Determine the equation for the demand function (that is, the price as a 4

the function of quantity demanded. If P = a – bx, then MR = a – 2bx)

b) Determine the Marginal Cost (MC)

c) Calculate the optimum price

d) Compute the maximum profit

e) Explain what is meant by the price elasticity of demand

## 1 Answer