Consider a local fast-food restaurant. The following table shows the maximum price that Alex and Anna will pay for two products: chicken nuggets and fries. Assume that the marginal cost of chicken nuggets is $1.00 and the marginal cost of fries is $0.50. Alex Anna Maximum Price Chicken Nuggets $1.50 $2.55 Fries $1.50 $0.45 Bundled Price $3.00 $3.00 a. Compare all four possible single-item pricing policies to find the profit- maximizing single-item pricing policy. b. Solve for profit if the restaurant engages in pure bundling. c. Assume the restaurant engages in mixed bundling and charges $3.00 for a bundle, $2.52 for chicken nuggets, and $1.50 for fries. Show that the profit obtained under mixed bundling will be higher than that under pure bundling or single-item pricing

Consider a local fast-food restaurant. The following table shows the maximum price that Alex and Anna will pay for two products: chicken nuggets and fries. Assume that the marginal cost of chicken nuggets is $1.00 and the marginal cost of fries is $0.50. Alex Anna Maximum Price Chicken Nuggets $1.50 $2.55 Fries $1.50 $0.45 Bundled Price $3.00 $3.00 a. Compare all four possible single-item pricing policies to find the profit- maximizing single-item pricing policy. b. Solve for profit if the restaurant engages in pure bundling. c. Assume the restaurant engages in mixed bundling and charges $3.00 for a bundle, $2.52 for chicken nuggets, and $1.50 for fries. Show that the profit obtained under mixed bundling will be higher than that under pure bundling or single-item pricing

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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