3. Is bundling profitable? Suppose that Ana is the owner of the only nonmotorized water sports rental shop on a small lake in New Hampshire. At Ana'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 kayaks. Item Rowboats Kayaks Willingness to Pay (Dollars) College Students 15 3 (Dollars) Retired People 25 5 of Ana rents out rowboats and kayaks separately, the best she can do is to charge $25 for a rowboat rental and hese prices, her total profit is $30 from a market consisting of one of each type of customer. Given the valuations in the previous table, it valuations of both consumer types are $5 for a kayak rental. At Now, suppose that Ana will allow customers only to purchase a rental bundle for rowboats and kayaks, with no option of renting either item ndividually. In this case, the bundle price that maximizes her profit is $ , which yields a total profit of $ profitable for Ana to bundle her water sport equipment. This is due, in part, to the fact that the correlated.
3. Is bundling profitable? Suppose that Ana is the owner of the only nonmotorized water sports rental shop on a small lake in New Hampshire. At Ana'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 kayaks. Item Rowboats Kayaks Willingness to Pay (Dollars) College Students 15 3 (Dollars) Retired People 25 5 of Ana rents out rowboats and kayaks separately, the best she can do is to charge $25 for a rowboat rental and hese prices, her total profit is $30 from a market consisting of one of each type of customer. Given the valuations in the previous table, it valuations of both consumer types are $5 for a kayak rental. At Now, suppose that Ana will allow customers only to purchase a rental bundle for rowboats and kayaks, with no option of renting either item ndividually. In this case, the bundle price that maximizes her profit is $ , which yields a total profit of $ profitable for Ana to bundle her water sport equipment. This is due, in part, to the fact that the correlated.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:8. Is bundling profitable?
Suppose that Ana is the owner of the only nonmotorized water sports rental shop on a small lake in New Hampshire. At Ana'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 kayaks.
Item
Rowboats
Kayaks
Willingness to Pay
(Dollars)
College Students
15
3
(Dollars)
Retired People
25
5
If Ana rents out rowboats and kayaks separately, the best she can do is to charge $25 for a rowboat rental and
these prices, her total profit is $30 from a market consisting of one of each type of customer.
Given the valuations in the previous table, it
valuations of both consumer types are
$5 for a kayak rental. At
Now, suppose that Ana will allow customers only to purchase a rental bundle for rowboats and kayaks, with no option of renting either item
individually. In this case, the bundle price that maximizes her profit is $ , which yields a total profit of $
profitable for Ana to bundle her water sport equipment. This is due, in part, to the fact that the
correlated.
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