2. (15 points) Below is the table with the willingness to pay of both patient and impatient customers for Fast 'n' Slow shipping's two modes of shipping, overnight and ground. It costs Fast 'n' Slow $5 to ship a package overnight and $1 to ship it by ground.

Willingness to pay for ($)

SegmentOvernightGroundNumber ('000s)

Patient8420

Impatient15810

(a) (3 points) If Fast 'n' Slow only offers ground shipping, what price should it charge? What are the resulting profits?

(b) (3 points) If Fast 'n' Slow only offers overnight shipping, what price should it charge? What are the resulting profits?

(c) (4 points) If both methods of shipping are offered, which should the price of each be to maximize profits?

Fast 'n' Slow is considering slowing down the ground shipping so that it takes 7 days instead of 5 days. This not only lowers the value of ground shipping to customers, it actually increases cost to $1.50 per package due to additional warehouse storage. The new values are given below.

Willingness to pay for ($)

SegmentOvernightGroundNumber ('000s)

Patient8320

Impatient15310

(d) (3 points) What should be the new prices for each method of shipping? What are the resulting profits?

(e) (2 points) Your colleague is skeptical that choosing a slower shipping method which increases costs and decreases value to consumers can increase overall profits of the company. Explain how this is possible.