You are the manager of a firm that produces products Xand Yat zero cost. You kno

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 ProductY $90 70 40 $60 140 160 a. What are your firm's profits if you charge $40 for product Xand $60 for product Y? $300,000 b. What are your profits if you charge $90 for product X and $160 for product Y? $ 250,00

Explanation / Answer

a. If the firm charge $40 for product X and $60 for product Y, the all the three types(3000 customers) will buy good X and Y.

Thus, total profit = 3000×$40 + 3000×$60 =$300,000.

b. If the firm charge $90 for product X and $160 for product Y, then only consumer type 1 will purchase X and only consumer type 3 will purchase Y.

Thus, total profit = 1000×$90 + 1000×$160 =$250,000.

c. If the firm charges $150 for one unit of a bundle of X and Y, then all the three type consumers will purchase the bundle as it is feasible to all the three types.

Then, total profit = $150×3000 =$450,000.

d.If the firm charges $210 for a bundle of X and Y, then only consumer type 2 will purchase the bundle.

Here, profit from the bundle =$210×1000=210,000.

If the firm charges $90 for X, then only consumer type 1 will purchase X. Profit = $90×1000=$90,000.

If the firm charges $160 for Y, then only consumer type 3 will purchase Y. Profit = $160×1000= $160,000.

Thus total profit = $(210000+90000+160000)

= $460,000.

Thanks!

.

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.