Suppose you are a manager of a firm that produces products X, Y and Z. You know
ID: 1187426 • Letter: S
Question
Suppose you are a manager of a firm that produces products X, Y and Z. You know that there are two different types of consumers, type 1 and type 2, who value your products differently. You also know that there 10,000 type1 consumers and 50,000 type 2 consumers with the following valuations for the three products:<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
(a) If you price each product separately (i.e., using a standard pricing strategy), what prices should you charge to maximize revenues and what are the revenues?
(b) If you adopt a first-degree price discrimination policy, what prices should you charge to maximize revenues and what are the revenues?
(c) If you use a commodity-bundle strategy such that the products are sold as one item (i.e., you market product X, product Y, and product Z together), what price should you charge to maximize revenues and what are the revenues?
Explanation / Answer
a)
Price X at $200, Y at $75, and Z at $250. Revenues from
X sales will thus be $200(60,000) = $12 million, revenues from Y
sales will be $75(0,000) = $4.5 million, and Z sales will be $250(50,000) =
$12.5 million.
b)
Charge each group the maximum price they will pay for each item. consumers will pay $250, $150, and $100 for their own purchases. consumer no 2 will pay $200, $75, and $250, respectively. Total revenues from this strategy are: $5 million + $26.25 million = $31.25 million.
c)
Using a commodity bundling strategy, manager would maximize revenues when it
charges $500 for a bundle containing all three components. Its’ revenue would be
$30 million (60,000 x $500)