[Q: 12-2595976] A local insurance company offers both home and auto insurance to four types of customers with the reservation prices listed in the figure below. Assume for simplicity that there is only one consumer of each type.
[Q: 12-2595976] A local insurance company offers both home and auto insurance to four types of customers with the reservation prices listed in the figure below. Assume for simplicity that there is only one consumer of each type.
Chapter17: Capital And Time
Section: Chapter Questions
Problem 17.6P
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![[Q: 12-2595976] A local insurance company offers both home and auto insurance to four types of customers with
the reservation prices listed in the figure below. Assume for simplicity that there is only one consumer of each
type.
Home
Auto
Bundle
Customer A
Customer B
Customer C
Customer D
$89
$59
$89
$60
$148
$197
$162
$108
$102
$79
$57
$136
If the firm were to sell home and auto insurance separately, it would charge $79 for home insurance, $57 for auto
insurance, and earn a combined revenue of $544.
Determine the revenue the firm would receive if it used a pure bundle. Comparing the revenue of the pure bundle
to the revenue of selling home and auto insurance separately, we can conclude that the reservation prices of the
consumers must:
A. be serially correlated
B. have no correlation
C. be positively correlated
D. be negatively correlated](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ffe59071c-bd93-4f3b-8633-5477b409eafd%2F5b34fdd7-4e4f-4e6e-93de-c1145c160ce0%2Fdw9wgma_processed.png&w=3840&q=75)
Transcribed Image Text:[Q: 12-2595976] A local insurance company offers both home and auto insurance to four types of customers with
the reservation prices listed in the figure below. Assume for simplicity that there is only one consumer of each
type.
Home
Auto
Bundle
Customer A
Customer B
Customer C
Customer D
$89
$59
$89
$60
$148
$197
$162
$108
$102
$79
$57
$136
If the firm were to sell home and auto insurance separately, it would charge $79 for home insurance, $57 for auto
insurance, and earn a combined revenue of $544.
Determine the revenue the firm would receive if it used a pure bundle. Comparing the revenue of the pure bundle
to the revenue of selling home and auto insurance separately, we can conclude that the reservation prices of the
consumers must:
A. be serially correlated
B. have no correlation
C. be positively correlated
D. be negatively correlated
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