1. A local fast food restaurant has two types of customers, A and B. Their maximum willingness to pay for Chicken Nuggets and Fries is given by the following table:

Chicken French

Nuggets Fries

A $1.50 $1.50

B $2.55 $0.45

Assume the marginal cost of Chicken Nuggets is $1.00 and the marginal cost of French Fries is $0.50.

a. If the restaurant uses pure bundling, what is the optimal price of the bundle and profit (per type of customer)?

b. Can the restaurant use a mixed bundling strategy and increase profit? If so, what is the bundle price? What are the separate prices for Chicken Nuggets and French Fries? What is the profit from each type of customer?