The reservation prices (in dollars) of three classes of demanders (classes A, B, and C) for Ricky Parton's (a Latin country-western singer) compact disks are given in the table that follows:ClassCD 1CD 2А115ВС10It costs $4 to produce and distribute each compact disk. The company can sell each CD separately, can put them together as a boxed set (that is, as a pure bundle), or can sell them in a mixed bundling format (offer the CDsboth separately and as a boxed set). Assume that each demander wants only one of each of the CDs at the reservation price (or at any lower price) and that there are an equal number of demanders in each class. Forsimplicity, assume that the only costs are those mentioned herea. What pricing method would you advise Ricky's company to use?b. How much better (profit-wise) is the best pricing method than the second most profitable pricing method?

Question
Asked Oct 20, 2019
3 views
The reservation prices (in dollars) of three classes of demanders (classes A, B, and C) for Ricky Parton's (a Latin country-western singer) compact disks are given in the table that follows:
Class
CD 1
CD 2
А
11
5
В
С
10
It costs $4 to produce and distribute each compact disk. The company can sell each CD separately, can put them together as a boxed set (that is, as a pure bundle), or can sell them in a mixed bundling format (offer the CDs
both separately and as a boxed set). Assume that each demander wants only one of each of the CDs at the reservation price (or at any lower price) and that there are an equal number of demanders in each class. For
simplicity, assume that the only costs are those mentioned here
a. What pricing method would you advise Ricky's company to use?
b. How much better (profit-wise) is the best pricing method than the second most profitable pricing method?
help_outline

Image Transcriptionclose

The reservation prices (in dollars) of three classes of demanders (classes A, B, and C) for Ricky Parton's (a Latin country-western singer) compact disks are given in the table that follows: Class CD 1 CD 2 А 11 5 В С 10 It costs $4 to produce and distribute each compact disk. The company can sell each CD separately, can put them together as a boxed set (that is, as a pure bundle), or can sell them in a mixed bundling format (offer the CDs both separately and as a boxed set). Assume that each demander wants only one of each of the CDs at the reservation price (or at any lower price) and that there are an equal number of demanders in each class. For simplicity, assume that the only costs are those mentioned here a. What pricing method would you advise Ricky's company to use? b. How much better (profit-wise) is the best pricing method than the second most profitable pricing method?

fullscreen
check_circle

Expert Answer

Step 1

The reservation price refers to the consumers who have set their reservation price as the highest price that they are willing to pay for goods and services.

Step 2

The reservation price for boxed set can be tabulated as follows.

Reservation price
for the boxed set
Class
Reservation
Reservation
price for CD2
price for CD
A
11
5
16
В
8
9
17
C
19
10
help_outline

Image Transcriptionclose

Reservation price for the boxed set Class Reservation Reservation price for CD2 price for CD A 11 5 16 В 8 9 17 C 19 10

fullscreen
Step 3
  1. Selling boxed set priced at $16, is the best pricing method. This method is suggested because, R can get more revenue from using t...

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in

Business

Economics

Related Economics Q&A

Find answers to questions asked by student like you

Show more Q&A add
question_answer

Q: How might the social value of low versus high power distance influence how youwould lead and motivat...

A: The power is distributed to employees in the case of power distance and the performance orientation ...

question_answer

Q: In choosing what type of tax to use, what factors does government take into consideration?

A: In choosing the type of tax to use, the Government should consider all the 4 options:

question_answer

Q: Which items count as part of this year's GDP? Group of answer choices a. final goods [ Choose ] no y...

A: Hello. Since your question has multiple sub-parts, we will solve first three sub-parts for you. If y...

question_answer

Q: If banks expect that the rate of inflation in the coming year will be 4.95% and they want a real ret...

A: The real interest rate is the adjusted interest rate that doesn’t include the effect of inflation ra...

question_answer

Q: Suppose that an initial $ 10 billion increase in investment spending expands GDP by $ 10 billion in ...

A: Given:Change in consumption = $6 billionChange in income = $10 billion(We know, GDP = C + I + G + (X...

question_answer

Q: The accompnying graph depicts the market for socks. Adjust the graph to demonstrate what happens if ...

A: The initial market condition is given by the demand curve starting from 10 and sloping downwards and...

question_answer

Q: What variable is indeterminate?  a. increase in business taxes and an increase in the price of a com...

A: Hi, In case of a multipart question, i\'m required to answer the first three subparts. Lucky for you...

question_answer

Q: Calisto Launch Services is an independent space corporation and has been contracted to develop and l...

A: Present value (PV) or Present worth (PW) is the amount of money that must be invested now at a given...

question_answer

Q: What is the implication of economic growth for our economy , society and environment?

A: Economic growth occurs when the production of goods and services in the economy rises. It can be mea...