A seller faces two buyers: Big and Small. The seller knows the following willingness to pay...

A seller faces two buyers: Big and Small. The seller knows the following willingness to pay values: Big is willing to pay $10 for one unit, $5 for a second unit, $2 for a third unit, and does not want more than three units; Small is willing to pay $6 for one unit and does not want more than one unit. Assume the seller cannot distinguish which buyer is Big and which buyer is Small. Assume resale is impossible. What price menu maximizes the seller's revenue?

Buyer's choice: A package of 1 unit for $6 or a package of 3 units for $13. Why is this answer?

Expert Solution

Answer:

He will sell a single unit for $6. As the seller doesn't know which seller is big and which is small so he can't afford to lose a customer anything at the price of $10 . So that he can attract both the consumer So the maximum he can charge for a product is $6. At that price the package will be ($6 + $5 + $2 ) $13.

Hence correct answer is:

A package of 1 unit for $6 or a package of 3 units for $13.

Rahul Sunny answered 2 years ago

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