You are the manager of a local sporting goods store that rents skis and ski bindings. A typical consumer demand function over a month for skis is given by P =100 10Q, and the firms cost function is is TC = 20Q.

1. What is the optimal two part pricing strategy?
2. How much additional profit will sporting goods store earn using two-part pricing and block pricing strategy compared to the traditional pricing strategy?
3. Suppose the local sporting goods store does not know its demand function, but knows that there are three consumer types that have different willingness to pay for skis and ski bindings as follows:

Consumer type Ski Ski Binding

A 60 10

B 50 28

C 25 12

The firm can price the two products separately or it can sell the products in a bundle for a single price. If the price of a bundle is $37, how many bundles will the firm sell, and is this the optimal price for the firm? Explain and demonstrate your answer. Assume that there are no costs to the firm and that each consumer type consists of 5 individuals