Question

Stringer Bell sells two products, red candy for $4 and yellow candy for $5. In a typical hour, 5 customers
will buy only red candy and 4 customers buy only yellow candy, but there are 2 people who buy both.
After asking around, Stringer Bell learns that the red-candy buyers would also buy yellow candy if it
were to cost $2, and yellow-candy buyers would also buy red candy if they were sold for $2. Stringer
Bell considers selling red and yellow candy together in a bundle, in addition to selling them separately
at the original prices. What is the optimal price of the bundle? (You can assume that the cost of
producing a good or creating a bundle is zero)
(a) 6
(b) 7
(c) 9
(d) 8

ans A

could you please explain？

Answer 1

Answer
option a
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there is no cost, so the revenue is equal to the profit
revenue =price *quantity
before bundling the revenue =5*4+4*5+5*2+4*2
=58

the red candy customer purchases yellow if it is for $2 and Yellow candy consumer also purchase Red if it is for $2
so if the bundle is for $7 (Yellow candy price +2), then Yellow candy customer and the two joint customers will buy both, but if it is for $6 (red candy price +2) then the bundle will be purchased by all 11 consumers (5+4+2)

revenue =bundle price*quantity
P=7
revenue =6*7=$42 .......... at $7 second can afford to purchase
P=$6
revenue =11*6=$66 ........... at $6 11 can afford to purchase
the revenue is maximum for $6 because all consumer will purchase it and the revenue also increases, so the optimum price for the bundle is $6.