9. Is bundling profitable?Suppose that Ginny is the owner of the only nonmotorized water sports rental shop on a small lake in New Hampshire. At Ginny's shop, customers canrent 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 $5per item. Moreover, there are only two types of customers-college students and retired peopie-and there are equal numbers of each type ofcustomer. The following table shows the willingness to pay of both customer types for paddle boats, and tubes.Willingness to Pay(Dollars)(Dollars)ItemCollege Students Retired PeoplePaddle boats2530Tubes610If Ginny rents out paddle boats and tubes separately, the best she can do is to charge sfor a paddie boat rental and Sfor a tuberental, At these prices, her total profit is sfrom a market consisting of one of each type of customer.Now, supposehat Ginny will allow customers only to purchase a rental bundle for paddle boats and tubes, with no option of renting either itemindividually. In this case, the bundle price that maximizes her profit is 5. which yields a total profit of 5Given the valuations in the previous table, itprofitable for Ginny to bundle her water sport equipment. This is due, in part, to the fact thatthe valuations of both consumer types arecorrelated.

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9. Is bundling profitable? Suppose that Ginny is the owner of the only nonmotorized water sports rental shop on a small lake in New Hampshire. At Ginny's shop, customers cam rent a variety of items such as canoes, paddie boats, tubes, and windsurfers. Assume that the marginal cost of renting out any of these items is s5 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 paddle boats, and tubes. Willingness to Pay (Dollars) (Dollars) College Students Retired People Item Paddie boats 25 30 Tubes 10 If Ginny rents out paddle boats and tubes separately, the best she can do is to charge S for a paddie boat rental and S for a tube rental. At these prices, her total profit is S from a market consisting of one of each type of customer.

9. Is bundling profitable? Suppose that Ginny is the owner of the only nonmotorized water sports rental shop on a small lake in New Hampshire. At Ginny's shop, customers cam rent a variety of items such as canoes, paddie boats, tubes, and windsurfers. Assume that the marginal cost of renting out any of these items is s5 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 paddle boats, and tubes. Willingness to Pay (Dollars) (Dollars) College Students Retired People Item Paddie boats 25 30 Tubes 10 If Ginny rents out paddle boats and tubes separately, the best she can do is to charge S for a paddie boat rental and S for a tube rental. At these prices, her total profit is S from a market consisting of one of each type of customer.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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