8. Your firm produces two products: a computer and a monitor. The computer is pr
ID: 1115662 • Letter: 8
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8. Your firm produces two products: a computer and a monitor. The computer is produced at a constant marginal cost of $1000 per unit. The monitor is produced at a constant marginal cost of S300 per uni. You face four consumers (or groups of consumers) with the following maximum prices they are willing to pay for each of the goods (10 points) Monitor $800 $600 $400 $200 $300 Consumers Computer $900 S1,100 $1,300 $1,500 $1,000 Marginal Cost Consider three alternative pricing strategies) Selling goods separately; (i) Pure bundling; (ii) Mixed bunding. For each strategy determine the optimal prices to be charged and the resulting profits. Which strategy is best? Show your work (15 points)Explanation / Answer
Answer : (iii) Mixed bundling strategy is best for my company. Because my company faces 4 consumers and every consumer has different willing payment. Now if my company sell computers and monitors separately then in case of consumer A my company face loss for computer and similarly company face loss for monitor in case of consumer D because company's marginal cost is $1000 and $ 300 respectively. If company take pure bundling strategy then consumers may not be attracted because consumer demand may be for single product. Now if my company take the mixed bundling strategy then it is profitable for company. Because consumers are attracted in case of mixed bundling with a discount rate. According to given table company's total marginal cost is $1300 and each individual's total willing payment is $1700. This means company profit is $400 . Now if company want to get more profit let $2000 then company can charge $2500 and give a discount of 20%. In that case consumers are attracted to buy the mixed bundling products. Thus company can get it's maximum profit.
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