Distinguish between the two types of students

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Reference no: EM133086208

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).

 

Students with Early Classes

Students without Early Classes

Coffee

71

61

Banana

50

100

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 161, or just a coffee for 71.

2.

Price separately: Offer coffee at 61, price a banana at 100.

3.

Bundle only: Coffee and a banana for 121. 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 yields the highest profit for the café owner.

Reference no: EM133086208

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