Question

You are the manager of a firm that produces products Xand Yat zero cost. You know that different types of consumers value your two products differently, but you are unable to identify these consumers individually at the time of the sale. In particular, you know there are three types of consumers (1,000 of each type) with the following valuations for the two products: Consumer Type Product X Product Y $90 70 40 140 160 a. What are your firm's profits if you charge $40 for product X and $60 for product Y? b. What are your profits if you charge $90 for product X and $160 for product Y? c.What are your profits if you charge $150 for a bundle containing one unit of product X and one unit of product Y? d. What are your firm's profits if you charge $210 for a bundle containing one unit of X and one unit of Y but also sell the products individually at a price of $90 for product X and $160 for product Y?

Answer 1

a. As Price of X is $40 which 3 types of Customers will accept The total Customers for X is 3000. As Price of Y is $60 which 3 types of Customers will accept The total Customers for Y is 3000

Profit = 3000 * (40 + 60) = $300000

b. As Price of X is $90 which Only Type 1 Customers will accept The total Customers for X is 1000. As Price of Y is $160 which Only Type 3 Customers will accept The total Customers for Y is 1000

Profit = 1000 * (90 + 160) = $250000

c. As bundled price of X and Y is $150 which is lowest Bundled price in case of all 3 types of customers. all of the customers will purchase the product

Profit = 3000 * (150) = $450000

d. As bundled price of X and Y is $210 which is highest Bundled price in which case only Type 3 customers will purchase the product. As Price of X is $90 which Only Type 1 Customers will accept The total Customers for X is 1000. As Price of Y is $160 which Only Type 3 Customers will accept The total Customers for Y is 1000

Profit = 1000 * 210 + 1000 *90 + 1000 * 160

Profit = $460000