GeeM has a sporty wheel package and a luxury interior package that is considerin

Question

GeeM has a sporty wheel package and a luxury interior package that is considering offering to its auto boyers. GeeM has estimated that there are three consumer types (A, B, and C - all of equal magnitude - for simplicity,  consider it one of each type). Comsumers want (at most) one of each package. It costs GeeM 5 to produce a sporty wheel package and 10 to produce a luxury interior package. It will cost GeeM 15 to produc a bundle consisting of both packages.

The following are the consumer reservation prices for each package:

Consumer    Wheels      Interior

A                           11                24

B                            35              12

C                            18              28

A consumer's reservation price for a bundle consisting of sporty wheels and a luxury interior is the sum of the individual component reservation prices. GeeM does not price discriminate.

GeeM has solicited your help in pricing the wheel and interior package. You know that they could sell the packages seperately, as a pure bundle, or a mixed bundle.

Of those three pricing strategies, which one would maximize GeeM's profit? What the the prices (what is the price) you suggest? How much better is the best pricing strategy then the second best pricing strategy?

Explanation / Answer

first considering wheels package

profit = (11-5) + (35-5) + (18-5) = 49

inteerior package

profit = (24-10) + (12-10) + (28-10) = 34

bundle package

profit = (35-15) + (47-15) + (46-15) = 83

third one i.e bundle package maximises GeeM's profit

next best is wheels package

bundle is $34 more profitable than wheels package

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