12 . Individual Problems 14-6
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 67 57
Banana 46 96
The marginal cost of coffee is 5 and the marginal cost of a banana is 20.
The café owner is considering three pricing strategies:
1. Mixed bundling: Price bundle of coffee and a banana for 153, or just a coffee for 67.
2. Price separately: Offer coffee at 57, price a banana at 96.
3. Bundle only: Coffee and a banana for 113. 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.
