Find the profit maximising bundles the firm sells

Reference no: EM131065424

Question

Consider the following data for the marginal benefit (MB) of three consumers for a particular good.

Luke
MB ($ per unit)		Sales (units a month)
24.00		1
18.00		2
12.00		3
6.00		4
0		5

Leia
MB ($ per unit)		Sales (units a month)
20.00		1
14.00		2
8.00		3
2.00		4
0		5

Han
MB ($/movie)		Sales (movies/ month)
16.00		1
10.00		2
4.00		3
0.00		4
0		5

Suppose that the firm which supplies this good has a fixed cost of $10 and marginal cost of $3, so that total cost is TC = 10 + 3Q, where Q represents output. Suppose the firm is able to bundle its output.

a Suppose Han is a student and thus has a student card, and the other two customers do not. In this case the firm could offer separate prices for students and non-students.

i Find the profit maximising bundles the firm sells.

ii What level of consumer surplus does each consumer receive? Provide an intuitive reason for the differences in consumer surplus received by customers.

b Now consider the case in which Leia and Han are both students, but Luke does not. In this case also the firm could offer separate prices for students and non-students.

i Find the profit maximising bundles the firm sells.

ii What level of consumer surplus does each consumer receive? Provide an intuitive reason for the differences in consumer surplus received by customers.

c Provide an explanation for the difference in profit you found in part a and part b?

d Now consider the case in which neither Leia nor Han have identification, like student cards discussed above, which could be used to identify them as members of a low MB group. However Luke has a membership card to an exclusive golf club.

i In this example, could the firm profit by offering a particular price to people who show their golf club membership card?

ii How would the firm go about pricing in this case? Identify the key economic characteristics of the firm's optimal pricing scheme. Will profit be higher or lower than that obtained under the assumptions of part a and part b?

Reference no: EM131065424

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