Question

You are the boss of "yikes my fries!" and you sell burgers and shakes. You face daily 3 consumers with the following WTP.

Burger.   Shakes

Bob.   8.   3

Jud. 5   5

Ruddy. 7 5

1. What is the profit-maximizing price for burgers? (how much profit?)
2. What is the profit-maximizing price for shakes? (how much profit?)
3. If the firm was considering to offer a burger and shakes as a meal instead of separately. What price should the firm set to maximize profits? Is it better than single pricing?
4. What if it could offer, burgers, shakes and the combo: burger and shakes! What price should it set for all these items to maximize total profit?

Answer 1

Table of WTP

	B	S	Combined
Bob	8	3	11
Jud	5	5	10
Ruddy	7	5	12

1) for Burgers B

If P = 5, all three buy π= 5*3= 15

P = 7, Only Bob & Ruddy buy,π= 2*7= 14

P = 8, π= 8

So Max profit is 15, when P = 5

2) for Shakes S

P = 3, all three buy, π= 3*3= 9

P = 5, only two buy , π= 5*2= 10

max profit = 10, when P = 5

3) bundle price

If P = 10, all three buy, π= 3*10= 30 , max

P = 11, π= 2*11= 22

P = 12, π= 12

Max profit = 30, when bundle price = 10

so max profit rises from (15+10) = 25 to 30, so it is better than single pricing

4) MIXED BUNDLING

​​​​​​individual price

1) burger : 8

2) shakes : 5

bundle price : 12

so total π = 8+5+12 = 25

ruddy will buy bundle, Bob will buy only burger, & Jud will buy only Shake