Question

How am I missing calculation of part A? Part B is correct.

You are the manager of a local sporting goods store and recently purchased a shipment of 60 sets of skis and ski bindings at a total cost of $25,000 (your wholesale supplier would not let you purchase the skis and bindings separately, nor would it let you purchase fewer than 60 sets). The community in which your store is located consists of many different types of skiers, ranging from advanced to beginners. From experience, you know that different skiers value skis and bindings differently. However, you cannot profitably price discriminate because you cannot prevent resale. You are the manager of a local sporting goods store and recently purchased a shipment of 60 sets of skis and ski bindings at a total cost of $25,000 (your wholesale supplier would not let you purchase the skis and bindings separately, nor would it let you purchase fewer than 60 sets). The community in which your store is located consists of many different types of skiers, ranging from advanced to beginners. From experience, you know that different skiers value skis and bindings differently. However, you cannot profitably price discriminate because you cannot prevent resale.

There are about 20 advanced skiers who value skis at $400 and ski bindings at $275; 20 intermediate skiers who value skis at $300 and ski bindings at $400; and 20 beginning skiers who value skis at $200 and ski bindings at $350.

A: What is your maximum revenue if you charge a separate price for skis and bindings? $ ?????????

B: What is your maximum revenue if you sell skis and bindings as a bundle? $ 33000

Answer 1

a) Charging separate prices for ski

If the seller is charging 200 for ski, then total revenue would be 200*60=12000. This is because this price is the lowest and all types of buyers would buy.

If the seller is selling at 300, 40 buyers would buy ie those who have price as 400 and 300, so the revenue would be 300*40=12000

If the seller is selling skis at 400, only 20 advanced ones would buy and hence the revenue would be 400*20=8000

So revenue would be same and highest when skis are sold at either $200 or $300

Now the case for ski bindings

If it is sold at $275 which is the minimum price, then the revenue would be 275*60=$16500

If it is sold for 350,40 buyers would buy, so revenue would be 350*40=14000

And 20 buyers would buy when price is $400 . So revenue would be $8000.

Hence maximum revenue is when it is sold at $275.

So total revenue for separately selling would be 16500+12000= 28500$

b) If bundling is done, the bundle for advanced would be $675, for intermediate would be $700 and for beginners would be $550. (These are the sums of the values to buyers )

Now if the bundle is sold at 550, all 60 would be sold at 550*60=33000

If 675, 40 bundles are sold=675*40=$27000 and the third one would be 700*20=$14000

So maximum revenue when bundling is done is $33000

(You can comment for doubts)