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You own a fast food restaurant and must decide on a pricing strategy for burgers and fries. Marginal production costs are constant at $1 for burgers and $0.50 for fries. The market you serve contains equal numbers of 3 types of consumers called "Average", "Burger Buffs", and "Fries Fiends". Each consumer will purchase at most 1 of each food type. Their valuations of the two goods are listed in the following table. Consumer Valuations Consumer Types Burgers Fries (Burger + Fries) Meal Average $5.33 $8 $13.33 Burger Buffs $12 $3 $15 Fries Fiends $3 $11 $14
1) What are the optimal (separate) prices for burgers and fries?
2) What is the optimal bundle price for a meal if you only are selling bundles?
3. What are the optimal mixed bundle prices if you allow consumers to buy the meal or to buy a burger or fries separately? Particularly what price would you set for the bundle, and what price would you set for the burgers and fries on their own?
4. Which pricing strategy yields the highest profit, and why?
5. How do the answers change (if at all) if marginal costs increase to $4 for burgers and $4 for fries?
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