Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

At a student caf, there are equal numbers of two types of customers with the following values. The caf owner cannot distinguish between the two

At a student caf, there are equal numbers of two types of customers with the following values. The caf owner cannot distinguish between the two types of students because many students without early classes arrive early anyway (i.e., she cannot price-discriminate).

Students with Early Classes Students without Early Classes
Coffee 67 57
Banana 46 96

The marginal cost of coffee is 5 and the marginal cost of a banana is 20.The caf owner is considering three pricing strategies:

1. Mixed bundling: Price bundle of coffee and a banana for 153, or just a coffee for 67.
2. Price separately: Offer coffee at 57, price a banana at 96.
3. Bundle only: Coffee and a banana for 113. Do not offer goods separately.

Assume that if the price of an item or bundle is no more than exactly equal to a student's willingness to pay, then the student will purchase the item or bundle.For simplicity, assume there is just one student with an early class, and one student without an early class.

Price Strategy Revenue from Pricing Strategy Cost from Pricing Strategy Profit from Pricing Strategy
1. Mixed Bundling
2. Price Separately
3. Bundle Only

Pricing strategy (which one is it 1 or 2 or 3)yields the highest profit for the caf owner.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Strategic Management And Business Policy: Globalization, Innovation And Sustainability

Authors: Thomas L. Wheelen, J. David Hunger, Alan N. Hoffman, Chuck Bamford

14th Edition

0133126145, 978-0133126143

More Books

Students also viewed these Economics questions

Question

2. Information that comes most readily to mind (availability).

Answered: 1 week ago

Question

3. An initial value (anchoring).

Answered: 1 week ago