Question

For Levi’s, there are two types of consumers: Spouses who buy jeans for themselves and their spouse, and single people. Spouses are willing to pay $100 for the first pair of jeans, $80 for the second pair, and $0 for any further pairs of jeans. Single people are willing to pay $120 for the first pair of jeans, and $0 for any further pairs of jeans. Assume that there 10 single people and 1 spouse who shop at Levi’s. Which of the following pricing schemes maximizes Levi’s Revenue? Please provide workings as well

P1 is the price of 1st jean purchased, P2 is the price of 2nd jean purchased

a) P1=P2=80
b) P1=100, P2=80
c) P1=120, P2=80
d) P1=120, P2=60

Answer 1

Fact of the case

		P1	P2	P3
Spouse	1	<= 100	<= 80	0
Single Person	10	<= 120	0	0
Total Customer	11

two types of consumers

1. Spouse

Ready to pay maximum

P1 =100 ;P2 = 80 ;P3 = 0

That means customer will purchase maximum of two jeans at total maximum price of 180 (100+80) and won't purchase third one as there is not requirement further.

2. Single Person

Ready to pay maximum

   P1 =120 ; P2 = 0 ;P3 = 0

That means customer will purchase maximum of one jean at tota maximum price of 120 and won't purchase further one as there is not requirement .

In current situation We have

• Spouse = 01
• Single person = 10

Answer

Option D _ P1 =120; P2 = 60  as it result in maximum revenue generation of 1440

Working Note :

Revenue under each options given

Option-01 a) P1=P2=80
P1	80
P2	80

As price for both P1 and P2 is less than maximum price that both type of customer willing to pay; both will purchase
Total Revenue			Amt X nos of jeans	Total Revenue
Spouse	1	P1	80 X 1	80
		P2	80 X 1	80
Single Person	10	P1	80 x 10	800
				960

Option-02 -b) P1=100, P2=80
P1	100
P2	80

As price for both P1 and P2 is less than maximum price that both type of customer willing to pay; both will purchase
Total Revenue			Amt X nos of jeans	Total Revenue
Spouse	1	P1	100 X 1	100
		P2	80 X 1	80
Single Person	10	P1	100 x 10	1000
				1180

Option-03- c) P1=120, P2=80
P1	120
P2	80

As price for P1 is more than maximum price that both First type of customer (i.e. Spouse) willing to pay; Hence only Second type of customer (i.e. Single Person) will purchase.
Total Revenue			Amt X nos of jeans	Total Revenue
Spouse	1	P1	100 X 0	0
		P2	80 X 0	0
Single Person	10	P1	120 x 10	1200
				1200

Option-04- c) P1=120, P2=60
P1	120
P2	60

As price for P1 is more than maximum price that First type of customer (i.e. Spouse) willing to pay; However Total price for P1 and P2 is within the limit of 180. Hence Let assume both types of customer will purchase.
Total Revenue			Amt X nos of jeans	Total Revenue
Spouse	1	P1	120 X 01	120
		P2	60 X 02	120
Single Person	10	P1	120 x 10	1200
				1440