Problem 2 A firm produces two products, the demands for which are independent. Each of the products has zero marginal cost. The firm faces four consumers with the following reservation prices: Alyona Betty Celine Delilah Good 1 30 40 80 70 Good 2 140 100 60 60 Bundle 170 140 140 130

Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter14: Indirect Price Discrimination
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Problem 2
A firm produces two products, the demands for which are independent. Each of the products has zero
marginal cost. The firm faces four consumers with the following reservation prices:
Alyona
Betty
Celine
Delilah
Good 1
30
40
80
70
Good 2
140
100
60
60
Bundle
170
140
140
130
(a) First, calculate the profit-maximizing prices and the resulting profit if goods are sold separately. Next,
suppose the firm can use pure bundling (i.e., it only sells the products only as a bundle, and does not sell
the products separately). Calculate the profit-maximizing price of the bundle and the resulting profit.
(b) Analyze whether or not the firm can maximize its profit by using mixed bundling. If so, what is the
profit-maximizing pricing strategy? If not, briefly explain why.
J
Transcribed Image Text:Problem 2 A firm produces two products, the demands for which are independent. Each of the products has zero marginal cost. The firm faces four consumers with the following reservation prices: Alyona Betty Celine Delilah Good 1 30 40 80 70 Good 2 140 100 60 60 Bundle 170 140 140 130 (a) First, calculate the profit-maximizing prices and the resulting profit if goods are sold separately. Next, suppose the firm can use pure bundling (i.e., it only sells the products only as a bundle, and does not sell the products separately). Calculate the profit-maximizing price of the bundle and the resulting profit. (b) Analyze whether or not the firm can maximize its profit by using mixed bundling. If so, what is the profit-maximizing pricing strategy? If not, briefly explain why. J
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