Question

1. Individual Problems 14-1 Suppose Mattel, the producer of Barbie dolls and accessories (sold separately), has two types of consumers who purchase its dolls: low-value consumers and high-value consumers. Each of the low-value consumers tends to purchase one doll and one accessory, with a total willingness to pay of $56. Each of the high-value consumers buys one doll and two accessories and is willing to pay $109 in total. Mattel is currently considering two pricing strategies: • Strategy 1: Sell each doll for $28 and each accessory for $28 • Strategy 2: Sell each doll for $3 and each accessory for $53 In the following table, indicate the revenue for a low-value and a high-value customer under strategy 1 and strategy 2. Then, assuming each strategy is applied to one low-value and one high-value customer, indicate the total revenue for each strategy. Revenue from Low-Value Customers Revenue from High-Value Customers Total Revenue from Strategy $56 Value, 1 Accessory $109 Value, 2 Accessories ($) ($) ($) Strategy 1 $28 doll + $28 accessory ? ? ? Strategy 2 $3 doll + $53 accessory ? ? ? The strategy that generates the most revenue is strategy is (?)

Answer 1

the producer of barbie dolls and accessories has two type consumers

1. low value consumers
2. high value consumers

Low value consumers,

tends to purchase one doll and one accessory with willingness to pay 56$

strategy 1

doll price = 28$

accessory = 28$

total price = doll price + accessory

= 28$ + 28$

= 56$

strategy 2

doll price = 3$

accessory = 53$

total price = doll price + accessory

= 3$ + 53$

= 56$

High value consumers,

tends to purchase one doll and two accessory with willingsness to pay 109$

strategy 1

doll price = 28$

accessory = 28$

total price = doll price + 2 accesory

= 28$ + (2 x 28$)

= 84$

strategy 2

doll price = 3$

accessory = 53$

total price = doll price + 2 accessory

= 3$ + ( 2 x 53$ )

= 109$

here we see thats startegy 1 are not affect the revenue for low value consumers but affect the high value consumers

by the strategy 1 high value consumers have to pay 84$ compare to less than strategy 2.

so strategy 2 are generate more revenue than strategy 1.