9. Is bundling profitable? Suppose that Shen is the owner of the only nonmotorized water sports rental shop on a small lake in Michigan. At Shen'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 $3 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 valuations of both customer types for paddle boats and kayaks. Valuation Item College Students Retired People Paddle boats $16 $20 Kayaks $6 $10 If Shen rents out paddle boats and kayaks separately, the best he can do is to charge for a kayak rental. At these prices, his total profit is $ for a paddle boat rental and from a market consisting of one of each type of customer. Now, suppose that Shen will allow customers only to purchase a rental bundle for paddle boats and kayaks, with no option of renting either item individually. In this case, the bundle price that maximizes his profit is $ Given the valuations in the previous table, it the valuations of both consumer types are which yields a total profit of $ profitable for Shen to bundle his water sport equipment. This is due, in part, to the fact that correlated.
9. Is bundling profitable? Suppose that Shen is the owner of the only nonmotorized water sports rental shop on a small lake in Michigan. At Shen'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 $3 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 valuations of both customer types for paddle boats and kayaks. Valuation Item College Students Retired People Paddle boats $16 $20 Kayaks $6 $10 If Shen rents out paddle boats and kayaks separately, the best he can do is to charge for a kayak rental. At these prices, his total profit is $ for a paddle boat rental and from a market consisting of one of each type of customer. Now, suppose that Shen will allow customers only to purchase a rental bundle for paddle boats and kayaks, with no option of renting either item individually. In this case, the bundle price that maximizes his profit is $ Given the valuations in the previous table, it the valuations of both consumer types are which yields a total profit of $ profitable for Shen to bundle his water sport equipment. This is due, in part, to the fact that correlated.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:9. Is bundling profitable?
Suppose that Shen is the owner of the only nonmotorized water sports rental shop on a small lake in Michigan. At Shen'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 $3 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 valuations of both customer types for paddle boats and kayaks.
Valuation
Item
College Students
Retired People
Paddle boats
$16
$20
Kayaks
$6
$10
If Shen rents out paddle boats and kayaks separately, the best he can do is to charge
for a kayak rental. At these prices, his total profit is $
for a paddle boat rental and
from a market consisting of one of each type of customer.
Now, suppose that Shen will allow customers only to purchase a rental bundle for paddle boats and kayaks, with no option of renting either item
individually. In this case, the bundle price that maximizes his profit is $
Given the valuations in the previous table, it
the valuations of both consumer types are
which yields a total profit of $
profitable for Shen to bundle his water sport equipment. This is due, in part, to the fact that
correlated.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education