Question

Cosmo Cosmetics sells eye liner and mascara to three different types of customers. Below is the information on the valuation for each product for each customer type. Assuming zero costs of production, what pricing scheme will yield the highest profits for Cosmo Cosmetics? Customer Type Mascara $60 $50 Eyeliner $50 $30 $90

Answer 1

There is three pricing strategy:

Single Price
Mascara			Eyeliner
Price	Bought by	Profit	Price	Bought by	Profit
30	A,B,C	30*9=90	50	A,B,C	150
50	A, B	50*2=100	75	B, C	150
60	A	60	90	C	90

Then the firm will get the highest profit of (100+150)=250 in case of a single price.

Pure Bundling
Customer	Bundle Price	Bought by	Profit
A	110	A,B,C	330
B	125	B	125
C	120	B, C	240

The pure bundling highest profit is 330.

The mixed bundle only works if the firm charges the highest price for a single price and the highest price for bundling. Then the single price is 60 for mascara and 90 for eyeliner, the bundle price is 125. Then A and C will buy a single product and B will buy the bundle. The profit of the firm is 275.

Hence, the firm will earn highest profit if it sells the product in a bundle and the bundle price must be $110