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As people now care much about their health and like to drink pure water instead of soft drinks, CCPURE, a pure water product produced by

As people now care much about their health and like to drink pure water instead of soft drinks, "CCPURE", a pure water product produced by "CCPURE Limited" has become more and more popular. The marginal cost per bottle is $4. CCPURE now plans to adjust their pricing arrangement in order to earn more profit in some strategic locations. Suppose the inverse demand function of a typical household for CCPURE at a popular theme park is given by P = 26 - 2Q. (a) What is the quantity that the typical household inside the theme park will buy and what is the buyer surplus enjoyed if CCPURE charges a price of $4? Show the solution graphically. (b) If CCPURE uses two-part pricing consisting of a fixed payment and a per unit charge of $4, what is the maximum that CCPURE can charge for the fixed payment? (c) CCPURE is thinking of an alternative way to achieve similar results and is considering selling the water in packages of several bottles instead of single bottles. i. What is the optimal number of bottles to be packaged together for sale from the point of view of CCPURE? ii. How much should it charge for such a package to maximize its gain?

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