A fast-food restaurant faces two types of consumers and is deciding on a bundling strategy. The table below reports each consumer’s willingness-to-pay (WTP) for hamburgers, French fries, and the bundle of both items. The average cost of each good is also reported. A) What prices should the restaurant set for each food item if it sells the items separately? What is its profit in this scenario? B) What prices should the restaurant set if it sells the bundle “meal” of a hamburger and French fries? C) How do your answers change if the restaurant’s cost of beef increases so that the average cost of hamburgers increases to $4?
A fast-food restaurant faces two types of consumers and is deciding on a bundling strategy. The table below reports each consumer’s willingness-to-pay (WTP) for hamburgers, French fries, and the bundle of both items. The average cost of each good is also reported. A) What prices should the restaurant set for each food item if it sells the items separately? What is its profit in this scenario? B) What prices should the restaurant set if it sells the bundle “meal” of a hamburger and French fries? C) How do your answers change if the restaurant’s cost of beef increases so that the average cost of hamburgers increases to $4?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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A fast-food restaurant faces two types of consumers and is deciding on a bundling strategy. The
table below reports each consumer’s willingness-to-pay (WTP) for hamburgers, French fries, and the bundle of both items. The average cost of each good is also reported.
A) What
B) What prices should the restaurant set if it sells the bundle “meal” of a hamburger and French fries?
C) How do your answers change if the restaurant’s cost of beef increases so that the average cost of hamburgers increases to $4?
Transcribed Image Text:Consumer 1 WTP
Consumer 2 WTP
Average Cost
Hamburger
$3
$5
$2
French fries
$4
$2.50
$2
Both items (Bundle)
$7
$7.50
$4
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