At a student café, there are equal numbers of two types of customers with the following values. The café owner cannot distinguish between the two types of students because many students without early classes arrive early anyway (i.e., she cannot price-discriminate). Coffee Banana Students with Early Classes Students without Early Classes 68 45 58 95 The marginal cost of coffee is 10 and the marginal cost of a banana is 40. The café owner is considering three pricing strategies: 1. Mixed bundling: Price bundle of coffee and a banana for 153, or just a coffee for 68. 2. Price separately: Offer coffee at 58, price a banana at 95. 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 1. Mixed Bundling 2. Price Separately 3. Bundle Only Revenue from Pricing Strategy Cost from Pricing Strategy Profit from Pricing Strategy S $ $ $ $ S $ $ Pricing strategy yields the highest profit for the café owner.
At a student café, there are equal numbers of two types of customers with the following values. The café owner cannot distinguish between the two types of students because many students without early classes arrive early anyway (i.e., she cannot price-discriminate). Coffee Banana Students with Early Classes Students without Early Classes 68 45 58 95 The marginal cost of coffee is 10 and the marginal cost of a banana is 40. The café owner is considering three pricing strategies: 1. Mixed bundling: Price bundle of coffee and a banana for 153, or just a coffee for 68. 2. Price separately: Offer coffee at 58, price a banana at 95. 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 1. Mixed Bundling 2. Price Separately 3. Bundle Only Revenue from Pricing Strategy Cost from Pricing Strategy Profit from Pricing Strategy S $ $ $ $ S $ $ Pricing strategy yields the highest profit for the café owner.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:At a student café, there are equal numbers of two types of customers with the following values. The café owner cannot distinguish between the two
types of students because many students without early classes arrive early anyway (i.e., she cannot price-discriminate).
Coffee
Banana
Students with Early Classes Students without Early Classes
68
45
58
95
The marginal cost of coffee is 10 and the marginal cost of a banana is 40.
The café owner is considering three pricing strategies:
1. Mixed bundling: Price bundle of coffee and a banana for 153, or just a coffee for 68.
2. Price separately: Offer coffee at 58, price a banana at 95.
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
1. Mixed Bundling
2. Price Separately
3. Bundle Only
Revenue from Pricing Strategy Cost from Pricing Strategy Profit from Pricing Strategy
S
$
$
$
$
S
$
$
Pricing strategy
yields the highest profit for the café owner.
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