A company sells two goods (1 and 2) to two consumers (A and B). The consumers ha

Question

A company sells two goods (1 and 2) to two consumers (A and B). The consumers have reservation prices for the two goods given in the table below. Each consumer will purchase one unit of a good as long as its price is less than or equal to the consumer's reservation price for that good. The marginal cost of producing each good is $35 per unit. Consumer A Consumer B Good 1 $80 $60 Good 2 $40 S70 If the company plans to sell the goods separately, it should charge a price of $ for good 1 and Sfor good 2. (Enter your responses as integers)

Explanation / Answer

A company sells two goods(1 and 2 ) to two consumers (A and B ) . The consumers have reservation prices for the two goods are:

Each consumer will purchase one unit of a good as long as its price is less than or equal to the consumer's reservation price for that good.

Marginal cost of producing each good is $35 per unit.

If the company plans to sell the goods separately, it should charge a price of $ 60 for good 1 because charging a price $80 for good 1 , then consumer B will not buy it . Because Price =$80 > consumer B's reservation price for good1 .

And $40 for good 2 because charging a price $70 for good 2 , then consumer A will not buy it. Because Price=$70 > consumer A's reservation price for good 2.

A firm sells a product and the refillls that must be used to operate the product (like printers and ink cartridges). The firm wants to design a two part tariff for pricing the product (the entry fee) and it refils (the usage fee). If all its customers have the same demand curve , th firm should set :

the price of the product equal to marginal cost and the price of the refills equal to customer's consumer surplus. ( because in order to sell the maximum number of products then firm will charge the price = MC and to make up the lower cost per unit, the firm then imposes a fee (usage fee) upon customers and this will be equal to consumer surplus.)

Good 1 Good 2 Consumer A $ 80 $ 40 Consumer B $ 60 $ 70

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