Your company sells two products, product A and product B. You have two potential customers, Customer 1 and Customer 2. They will both either buy 0 or 1 units of each product. Their willingnesses to pay for each product are given by the table below:
Customer 1 | Customer 2 | |
Product A | $10 | $7 |
Product B | $12 | X |
a. Suppose that X is $14. Does it make sense for you to sell
your products as a bundle or to sell them separately?
b. For what range of possible ??’s is your answer to part (a) still
true?
c. Suppose that X is $14, but it costs $9 to produce each unit of
Product A and $10 to produce each unit of Product B. What pricing
strategy should you use?
Answer :-
a. I'll make a bundle which has a price $21 so that both the customers can buy and my total revenue, in this case, would be 21*2 = $42.
b. x >= 12, at x = $12 seller is indifferent between selling as a bundle or individually product.
c. If I sell them as a bundle then my profit will be:
=> TR - TC = (21*2) - (9*2 + 10*2) = $4.
But if Pa = $ 10 then profit from product A = $1.
and, price of product B = $12 then profit = 12*2 - 8*2 = 24 - 16 = $8.
Total Profit = 1+8 = $9.
Hence it profitable to sell them according to the latter scenario.
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