Attempts AverageO 8. Is bundling profitable? Suppose that Sean is the owner of the only nonmotorized water sports rental shop on a small lake in New Hampshire. At Sean's shop, customers can rent a variety of items such as canoes, paddle boats, tubes, and windsurfers. Assume that the marginal cost of renting out any of these items is $2 per item. Moreover, there are only two types of customers-college students and retired people-and there are equal numbers of each type of customer. The following table shows the willingness to pay of both customer types for rowboats and tubes. Item Rowboats Willingness to Pay (Dollars) (Dollars) College Students Retired People 15 Tubes 3 25 5 If Sean rents out rowboats and tubes separately, the best he can do is to charge $ prices, his total profit is $ for a rowboat rental and $ for a tube rental. At these from a market consisting of one of each type of customer. Now, suppose that Sean will allow customers only to purchase a rental bundle for rowboats and tubes, with no option of renting either item individually. In this case, the bundle price that maximizes his profit is $ Given the valuations in the previous table, it valuations of both consumer types are which yields a total profit of $ profitable for Sean to bundle his water sport equipment. This is due, in part, to the fact that the correlated. Grade It Now Save & Continue Continue without saving
Attempts AverageO 8. Is bundling profitable? Suppose that Sean is the owner of the only nonmotorized water sports rental shop on a small lake in New Hampshire. At Sean's shop, customers can rent a variety of items such as canoes, paddle boats, tubes, and windsurfers. Assume that the marginal cost of renting out any of these items is $2 per item. Moreover, there are only two types of customers-college students and retired people-and there are equal numbers of each type of customer. The following table shows the willingness to pay of both customer types for rowboats and tubes. Item Rowboats Willingness to Pay (Dollars) (Dollars) College Students Retired People 15 Tubes 3 25 5 If Sean rents out rowboats and tubes separately, the best he can do is to charge $ prices, his total profit is $ for a rowboat rental and $ for a tube rental. At these from a market consisting of one of each type of customer. Now, suppose that Sean will allow customers only to purchase a rental bundle for rowboats and tubes, with no option of renting either item individually. In this case, the bundle price that maximizes his profit is $ Given the valuations in the previous table, it valuations of both consumer types are which yields a total profit of $ profitable for Sean to bundle his water sport equipment. This is due, in part, to the fact that the correlated. Grade It Now Save & Continue Continue without saving
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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AverageO
8. Is bundling profitable?
Suppose that Sean is the owner of the only nonmotorized water sports rental shop on a small lake in New Hampshire. At Sean's shop, customers can
rent a variety of items such as canoes, paddle boats, tubes, and windsurfers. Assume that the marginal cost of renting out any of these items is $2
per item. Moreover, there are only two types of customers-college students and retired people-and there are equal numbers of each type of
customer. The following table shows the willingness to pay of both customer types for rowboats and tubes.
Item
Rowboats
Willingness to Pay
(Dollars)
(Dollars)
College Students Retired People
15
Tubes
3
25
5
If Sean rents out rowboats and tubes separately, the best he can do is to charge $
prices, his total profit is $
for a rowboat rental and $
for a tube rental. At these
from a market consisting of one of each type of customer.
Now, suppose that Sean will allow customers only to purchase a rental bundle for rowboats and tubes, with no option of renting either item
individually. In this case, the bundle price that maximizes his profit is $
Given the valuations in the previous table, it
valuations of both consumer types are
which yields a total profit of $
profitable for Sean to bundle his water sport equipment. This is due, in part, to the fact that the
correlated.
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