Question

Use the following table to answer the next questions (11-14).

(T1 to T5 is the type of the consumer and from each type there is one consumer, to be clear there is a total of 5 consumers in the market )

Customer	Product A Reservation Price	Product B Reservation Price
T1	180	170
T2	120	140
T3	100	80
T4	90	120
T5	90	80
Marginal Cost	80	70

11.  If the firm does not bundle the products, what single price should the firm charge for product A to maximize profit?

Select one:

a.
  0<P_A <100;

b.
100<P_A <130;

c.
130<P_A <160;

d.
160<P_A <200;

e.
  None of the above

12.

  If the firm does not bundle the products, what single price should the firm charge for product B to maximize profit?

Select one:

a.
0<P_B <100;

b.
100<P_B <130;

c.
130<P_B <160;

d.
160<P_B <200;

e.
None of the above

13.

If the firm does not bundle the products, What will be the firm’s profit?

Select one:

a.
  0<p i<100;

b.
100<p i<300;

c.
300<pi<600;

d.
600<pi <1000;

e.
None of the above

14.

If the firm does bundle the products, what price should the firm charge for product A+B to maximize profit?

Select one:

a.
0<P_AB <100;

b.
100<P_AB <130;

c.
130<P_AB <160;

d.
160<P_AB<200;

e.
None of the above

Answer 1

11)

There are four possible prices namely 180, 120, 100 and 90

At a price of 180, only 1 customer will buy the product.

So, profit at a price of 180=(P-MC)*q=(180-80)*1=$100

At a price of 120, only 2 customers will buy the product.

So, profit at a price of 120=(P-MC)*q=(120-80)*2=$80

At a price of 100, only 3 customers will buy the product.

So, profit at a price of 100=(P-MC)*q=(100-80)*3=$60

At a price of 90, All 5 customers will buy the product.

So, profit at a price of 100=(P-MC)*q=(90-80)*5=$50

We can see that profit is maximized if firm charges a price of $180 for product A.

Correct option is

d) 160<PA<200

12)

There are four possible prices namely 170, 140, 120 and 80

At a price of 170, only 1 customer will buy the product.

So, profit at a price of 180=(P-MC)*q=(170-70)*1=$100

At a price of 140, only 2 customers will buy the product.

So, profit at a price of 140=(P-MC)*q=(140-70)*2=$140

At a price of 120, only 3 customers will buy the product.

So, profit at a price of 120=(P-MC)*q=(120-70)*3=$150

At a price of 80, All 5 customers will buy the product.

So, profit at a price of 80=(P-MC)*q=(80-70)*5=$50

We can see that profit is maximized if firm charges a price of $120 for product B.

Correct option is

b) 100<PB<130

13)

Total Profit=Profit from product A+Profit from product B=100+150=250

Correct option is

b) 100<Pi<300

14)

Following maximum prices are possible.

Customer	Product A Reservation price	Product B Reservation price	Sum of reservation price
T1	180	170	350
T2	120	140	260
T3	100	80	180
T4	90	120	210
T5	90	80	170

Marginal Cost of bundle=80+70=$150

If bundle price is $350, only one customer will buy

Profit if price is $350=(P-ATC)*Q=(350-150)*1=$200

If bundle price is $260, only two customers will buy

Profit if price is $260=(P-ATC)*Q=(260-150)*2=$220

If bundle price is $210, only three customers will buy

Profit if price is $210=(P-ATC)*Q=(210-150)*3=$180

If bundle price is $180, only 4 customers will buy

Profit if price is $180=(180-150)*4=$120

If bundle price is $170, all 5 customers will buy

Profit if price is $170=(170-150)*5=$100

We can see that profit is maximized if the budle price is $260. Corresponding profit is $220.

Correct option is

e) None of the above