A store sells merchandise using a direct channel. A license plate holder currently sells for $33.99, while a keychain sells for $12.99. Variable costs for these items are only $17.00 and $6.00, respectively. The store plans to introduce a Car Gift Bundle for Fathers Day consisting of the

license plate holder and the keychain. (You may assume that they will not sell those items

separately while they offer the bundle.)

For simplicity, assume that there are only three potential customers (representing larger,

equal sized segments). The maximum willingness to pay (WTP) for the first customers is

$20 for the license plate holder and $18 for the keychain. The WTP for the second customer are $35 and $15, respectively, and for the third customer $38 and $7, respectively.

a. What would be the profit-maximizing price for the bundle (assuming no

additional fixed cost)?

b. Purely from a profit perspective, would you recommend this bundling strategy to

the store? (should they sell the bundle or continue to sell the products individually?)

c. Discuss at least one non-profit based argument that may affect the stores

decision to sell the items individually vs. as a bundle.