At a student café, there are equal numbers of two types of customers with the following values. The café owner cannot distingulsh between the two types of students because many students without earty classes arrive early anyway (1.e., she cannot price-discriminate). Students with Early Classes Students without Early Classes Coffee 73 63 Banana 53 103 The marginal cost of coffee Is 5 and the marginal cost of a banana is 20. The café owner Is considering three pricing strategles: 1. Mixed bundling: Price bundle of coffee and a banana for 166, or just a coffee for 73. 2. Price separately: Offer coffee at 63, price a banana at 103. 3. Bundle only: Coffee and a banana for 126. 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. For simplicity, assume there is just one student with an early class, and one student without an early class. Price Strategy Revenue from Pricing Strategy Cost from Pricing Strategy Profit from Pricing Strategy 1. Mixed Bundling 2. Price Separately 3. Bundle Oniy Pricing strategy ylelds the highest profit for the café owner. II

At a student café, there are equal numbers of two types of customers with the following values. The café owner cannot distingulsh between the two types of students because many students without earty classes arrive early anyway (1.e., she cannot price-discriminate). Students with Early Classes Students without Early Classes Coffee 73 63 Banana 53 103 The marginal cost of coffee Is 5 and the marginal cost of a banana is 20. The café owner Is considering three pricing strategles: 1. Mixed bundling: Price bundle of coffee and a banana for 166, or just a coffee for 73. 2. Price separately: Offer coffee at 63, price a banana at 103. 3. Bundle only: Coffee and a banana for 126. 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. For simplicity, assume there is just one student with an early class, and one student without an early class. Price Strategy Revenue from Pricing Strategy Cost from Pricing Strategy Profit from Pricing Strategy 1. Mixed Bundling 2. Price Separately 3. Bundle Oniy Pricing strategy ylelds the highest profit for the café owner. II

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Why won't perfectly competitve charge a price lower than the equilibrium price?
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Q5) Distinguish between marginal pricing and cost-plus pricing.
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