Question #1

Suppose Mattel, the producer of Barbie dolls and accessories (sold separately), has two types of consumers who purchase its dolls: low-value consumers and high-value consumers. Each of the low-value consumers tends to purchase one doll and one accessory, with a total willingness to pay of $68. Each of the high-value consumers buys one doll and two accessories and is willing to pay $133 in total.

Mattel is currently considering two pricing strategies:

	Strategy 1: Sell each doll for $34 and each accessory for $34
	Strategy 2: Sell each doll for $3 and each accessory for $65

In the following table, indicate the revenue for a low-value and a high-value customer under strategy 1 and strategy 2. Then, assuming each strategy is applied to one low-value and one high-value customer, indicate the total revenue for each strategy.

	Revenue from Low-Value Customers	Revenue from High-Value Customers	Total Revenue from Strategy
$68 Value, 1 Accessory	$133 Value, 2 Accessories	($)
($)	($)
Strategy 1
$34 doll + $34 accessory
Strategy 2
$3 doll + $65 accessory

The strategy that generates the most revenue is strategy(1 or 2).

Question #2

A local Pilates studio recently began offering a monthly subscription service for its patrons.

Suppose a particular patron at this studio has the following willingness-to-pay schedule, per session.

Session	Willingness to Pay
1st	$84
2nd	$72
3rd	$60
4th	$48
5th	$36
6th	$24

Suppose this consumer would not demand any more sessions, even for free. Also assume that the marginal cost to the studio, per session, is constant at $12.

At a price of $78.00 per session, the number of sessions demanded by this consumer would be

. At this price and quantity, consumer surplus is

and producer surplus is

.

Suppose the studio has devised a new pricing scheme for consumers who demand more than 1 session. This pricing scheme is a subscription service, whereby consumers can pay a flat fee of $259.20 and can have up to 6 sessions total.

Using this subscription pricing model, this consumer would demand (2,3,4,5, or 6) sessions. Under this scenario, consumer surplus is

and producer surplus is

Question #3

Your family business uses a secret recipe to produce salsa and distributes it through both smaller specialty stores and chain supermarkets. The chain supermarkets have been demanding sizable discounts, but you do not want to drop your prices to the specialty stores.

True or False: The Robinson-Patman Act limits your ability to offer discounts to the chain supermarkets while leaving the price high for the smaller stores.