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Reservation prices of three consumers for two goods

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The table below shows the reservation prices of three consumers for two goods. Assume that marginal production cost is $5 for each good and $10 for the bundle.

Customer A: Good 1 is $40. Good 2 is $13. Bundle is $53.

Customer B: Good 1 is $49. Good 2 is $3. Bundle is $52.

Customer C: Good 1 is $3. Good 2 is $30. Bundle is $33.

Show all your calculations

a. If the firm were to charge only separate prices (not sell the goods as a bundle), what prices should it set for Good 1 and Good 2 to maximize profit? Assuming for simplicity that the firm has only one customer of each type, what is the firm's profit?

b. If the firm were to sell these two goods only as a bundle, what price should it set for the bundle to maximize profit? Assuming for simplicity that the firm has only one customer of each type, what is the firm's profit?

c. Can you find a mixed bundling strategy that would improve upon your results in (a) and (b)? Why can mixed bundling improve profits (hint: some consumers' reservation prices are involved)?

Reference no: EM133124503

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