At a student cafe, there are equal numbers of two types of customers with the following values. The café owner cannot distinguish between the two types of students because many students without early classes arrive early anyway (Le, she cannot price-discriminate). Coffee Banana Students with Early Classes Students without Early Classes co 36 97 The marginal cost of coffee is 10 and the marginal cost of a banana is 40. The can owner is considering three pricing strategi 1. Mixed bunding: Price bundle of coffee and a banana for 153, or just a coffee for 06. 2. Price separately: Offer coffee at 56, price a banana at 97. 3. Bundle only: Coffee and a banana for 113. Do not offer goods separately. Assume that if the price of an item or bundle is no more than exactly equal to a student's willingness to pay, then the student will purchase the tem or bundle. For simplicity, assume there is just one student with an early class, and one student without an early class. Price Strategy 1. Mixed Bundling 2. Price Separately 3. Bundle Only Revenue from Pricing Strategy Cost from Pricing Strategy Profit from Pricing Strategy 000

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Question

Economics

5. Individual Problems 14-6
At a student café, there are equal numbers of two types of customers with the following values. The cafe owner cannot distinguish between the two
types of students because many students without early classes arrive early anyway (Le, she cannot price-discriminate).
Coffee
Banana
Students with Early Classes Students without Early Classes
36
97
co
47
The marginal cost of coffee is 10 and the marginal cost of a banana is 40.
The cafe owner is considering three pricing strategies:
1. Mixed bundling: Price bundle of coffee and a banana for 153, or just a coffee for 55.
2. Price separately: Offer coffee at 56, price a banana at 97.
3. Bundle only: Coffee and a banana for 113. Do not offer goods separately.
Assume that if the price of an item or bundle is no more than exactly equal to a student's willingness to pay, then the student will purchase the item
or bundle.
Price Strategy
1. Mixed Bundling
2. Price Separately
3. Bundle Only
For simplicity, assume there is just one student with an early class, and one student without an early class.
Revenue from Pricing Strategy Cost from Pricing Strategy Profit from Pricing Strategy
Pricing strategy yields the highest profit for the café owner.
Transcribed Image Text:5. Individual Problems 14-6 At a student café, there are equal numbers of two types of customers with the following values. The cafe owner cannot distinguish between the two types of students because many students without early classes arrive early anyway (Le, she cannot price-discriminate). Coffee Banana Students with Early Classes Students without Early Classes 36 97 co 47 The marginal cost of coffee is 10 and the marginal cost of a banana is 40. The cafe owner is considering three pricing strategies: 1. Mixed bundling: Price bundle of coffee and a banana for 153, or just a coffee for 55. 2. Price separately: Offer coffee at 56, price a banana at 97. 3. Bundle only: Coffee and a banana for 113. Do not offer goods separately. Assume that if the price of an item or bundle is no more than exactly equal to a student's willingness to pay, then the student will purchase the item or bundle. Price Strategy 1. Mixed Bundling 2. Price Separately 3. Bundle Only For simplicity, assume there is just one student with an early class, and one student without an early class. Revenue from Pricing Strategy Cost from Pricing Strategy Profit from Pricing Strategy Pricing strategy yields the highest profit for the café owner.
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