The first term on the right side of each equation represents the marginal revenue directly associated with each product. The second term depicts the indirect marginal revenue associated with each product and indicates the change in revenues due to a change in sales of the alternative product. For example, ATRB/AQa in Equation 12.12 shows the effect on product B revenues of an additional unit sold of product A. Likewise, ATRa/AQb in Equation 12.13 represents the change in revenues received from product A when an additional unit of product B is sold.
Cross-marginal revenue terms that reflect demand interrelations can be positive or negative. For complementary products, the net effect is positive because increased sales of one product lead to increased revenues from another. For substitute products, increased sales of one product reduce demand for another, and the cross-marginal revenue term is negative. Accurate price by-product
Output that is customarily produced as a direct result of an increase in the production of some other output determination in the case of multiple products requires a complete analysis of pricing decision effects. This often means that optimal pricing requires an application of incremental analysis to ensure that the total implications of pricing decisions are reflected.
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