Reference no: EM133082038
Question
A manufacturer of microwaves has discovered that male shoppers have little value for microwaves and attribute almost no extra value to an auto-defrost feature. Female shoppers generally value microwaves more than men do and attribute greater value to the auto-defrost feature. There is little additional cost to incorporating an auto-defrost feature. Since men and women cannot be charged different prices for the same product, the manufacturer is considering introducing two different models. The manufacturer has determined that men value a simple microwave at $59 and one with auto-defrost at $76, while women value a simple microwave at $76 and one with auto-defrost at $135.
Suppose the manufacturer is considering three pricing strategies:
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1.
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Market a single microwave, with auto-defrost, at $76, to both men and women.
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2.
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Market a single microwave, with auto-defrost, at $135, to only women.
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3.
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Market a simple microwave to men, at $59. Market a microwave, with auto-defrost, to women at $117.
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For simplicity, assume there is only 1 man and 1 woman and that if the price of a microwave is equal to an individual's willingness to pay, the individual will purchase the microwave.
Use the following table to indicate the revenue from men, the revenue from women, and the total revenue from each strategy.
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Strategy
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Revenue from Men
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Revenue from Women
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Total Revenue from Strategy
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1. Auto-Defrost Microwave only at $76
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2. Auto-Defrost Microwave only at $135
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3. Simple Microwave at $59, Auto-Defrost Microwave at $117
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Suppose that, instead of one man and one woman, the market for this microwave consisted entirely of women. For simplicity, you can assume this means that there are two women, and no men.
Under these conditions, pricing strategy ( 1,2,or 3) would maximize revenue for the manufacturer.
Question
The pricing model for iTunes has been to price songs individually. In contrast, Spotify opted to offer unlimited song playing for a monthly fee.
True or False: Spotify's pricing model will likely yield more profit if the value of the "bundle" of unlimited songs is more homogeneous across consumers than the values of the individual songs.
Question
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).
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Students with Early Classes
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Students without Early Classes
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Coffee
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73
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63
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Banana
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53
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103
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The marginal cost of coffee is 5 and the marginal cost of a banana is 20.
The café owner is considering three pricing strategies:
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1.
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Mixed bundling: Price bundle of coffee and a banana for 166, or just a coffee for 73.
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2.
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Price separately: Offer coffee at 63, price a banana at 103.
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3.
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Bundle only: Coffee and a banana for 126. Do not offer goods separately.
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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.
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Price Strategy
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Revenue from Pricing Strategy
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Cost from Pricing Strategy
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Profit from Pricing Strategy
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1. Mixed Bundling
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2. Price Separately
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3. Bundle Only
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Pricing strategy (1,2,or 3) yields the highest profit for the café owner.