Hacker Newsnew | past | comments | ask | show | jobs | submitlogin
Deriving your demand curve using exchange rate fluctuations (joelonsoftware.com)
10 points by jkush on April 24, 2007 | hide | past | favorite | 2 comments


You can't really vary the price of your product to carry such experiments, so Joel found a way to do it indirectly. Just great.

The results are pretty much predictable though.


The results are pretty much predictable though.

Not at all. Almost every demand curve is downward sloping, yes, but that doesn't mean every demand curve is the same.

If Joel's graph is accurate, and the Y axis starts at 0, this demand curve is VERY interesting. It's one of the most elastic curves I've seen. A 15% drop in price from 65 pounds to 55 leads to a 500% increase in volume. Of course the data isn't perfect, this is assuming consumers will purchase at the same rates as businesses.

If Joel wants to maximize profit, where profit = (Price-Marginal Cost) x Volume - Fixed costs, then the ideal price should be around 55 pounds.

This makes sense. For software development firms, cheaper is usually better. If you can reduce your price by X%, and increase your volume by more than X%, then go for it. You want to do this because software firms almost always have very low marginal costs (bandwidth), and very high fixed costs (development).




Guidelines | FAQ | Lists | API | Security | Legal | Apply to YC | Contact

Search: