Question

You own a fast food restaurant and must decide on a pricing strategy for burgers and fries. Marginal production costs are constant at $1 for burgers and $0.50 for fries. The market you serve contains equal numbers of 3 types of consumers called “Average”, “Burger Buffs”, and “Fries Fiends”. Each consumer will purchase at most 1 of each food type. Their valuations of the two goods are listed in the following table.

Consumer Types	Burger	Fries	B+F bundle deal
Average	5.55	8	13.33
Burger Buff	12	3	15
Fries Friends	3	11	14

What are the optimal mixed bundle prices if you allow consumers to buy the meal or to buy a burger or fries separately

Answer 1

Please note that the information are slightly inconsistent in the table. The B+F bundle deal column should be equal to Burger + Fries. i.e., the valuation of the bundle should be equal to the valuation of burger + valuation of fries. This is truw for last 2 rows, but not for the first row. Therefore, I have considered the following table for the calculation. You may follow the following logic if you need to update any number.

Consumer Types	Burger	Fries	Bundle
Average	5	8	13
Burger Buff	12	3	15
Fries Friends	3	11	14

The table below shows several scenarios. The next table shows the formula view of the calculation so that you can refer the calculations if you need to update any number at your end.

If the bundle price is kept at 13, then all types of consumers will buy it and no one will buy burget and fries separately. Hence, with this bundle price, only one scenario is possible.

If the bundle price is set at 14, only average consumers will not buy bundle. Hence, for them, the buger price can be set at 5 and fries price can be set at 8. Hence, there would be only one scenario (scenario 2) for this combination too.

However, if the bundle price is set at 15, then only burger buff will buy the bundle and for others, there could be 4 combinations of prices that can be set.

Accordingly, the revenue, cost and profit for all the scenarios are calculated above. \

Based on the calculation, it is observed that profit is maximized with a bundle price of 14, burger price of 5 and fries price of 8. In this case, all the consumers except for the average consumers will buy bundles at 14. Average consumers will buy it separately at the set price of $ 5 for burget and $ 8 for fries.

Thefore, this is the optimal mixed-bundle pricing stategy.