Answer to Question #91945 in Microeconomics for Zach

Question

The marketing department has identified 3 distinct, but equal size, groups that have the following reservation prices for these new devices.

Group Phone Headphones Bundle
A 800 100 900
B 1000 50 1050
C 600 150 750

A. If the firm charges only individual good prices (not the bundle), what price should it set for each device to maximize profits? Assume, that revenues=profit.
B. If the firm adopts a bundling strategy, what should be the bundle price to maximize profits(revenue)?
C. What is the difference in profits(revenues) between the two pricing strategies?

Answer 1

A. If the firm charges only individual good prices (not the bundle), then it should set the price of 1000 per phone and 150 per headphones to maximize profits.

B. If the firm adopts a bundling strategy, then the bundle price should be 1050 to maximize profits (revenue).

C. The difference in profits (revenues) between the two pricing strategies is 1150 - 1050 = 100 per bundle.