Question

You manage a donut shop that sells two goods – donuts and coffee. You also face two types of customers – customer type A and customer type B, and you see 100 customers of each type. Their respective values for the 2 goods you sell are:

	Type A	Type B
Donut	$3	$2
Coffee	$8	$3

If you sell donuts and coffee separately, what prices should you charge for each?

Donuts: $______________

Coffee: $______________

If you sell the 2 goods together as a bundle, what price should you charge for the bundle?

Bundle: $_______________


ANSWERS IN BOLD ONLY TO RECEIVE RATING. THANKS!

Answer 1

Case 1: Separate Pricing

Take the case of donuts

Revenue at a price of $3=3*100=$300 (only 100 units will be sold)

Revenue at a price of $2=2*200=$400 (200 units will be sold)

Revenue is higher if donut is charged a price of $2.

So, Price of donut: $2

Take the case of coffee

Revenue at a price of $8=8*100=$800 (only 100 units will be sold)

Revenue at a price of $3=3*200=$600 (200 units will be sold)

Revenue is higher if coffee is charged a price of $8.

So, Price of coffee: $8

Case 2 : Bundle Pricing

Possible prices are $11 (8+3) and $5 (3+2)

Revenue at a price of $5=5*200=$1000 (200 bundles will be sold)

Revenue at a price of $11=11*100=$1100 (only 100 bundles will be sold)

Revenue is higher if bundle is charged a price of $11.

So, Price of bundle: $11

Summary

If you sell donuts and coffee separately, what prices should you charge for each?

Donuts: $2

Coffee: $8

If you sell the 2 goods together as a bundle, what price should you charge for the bundle?

Bundle: $11