A firm sells two goods, 1 and 2, and faces two customers whose reservation price

Question

A firm sells two goods, 1 and 2, and faces two customers whose reservation prices are as follows. Customer A's reservation prices are $3.25 for good 1 and $6 for good 2.

Customer B's reservation prices are $8.25 for good 1 and $3.25 for good 2. The marginal cost of production is zero for both goods.

In this situation, the optimal pricing strategy for the firm is:

A. Sell the goods separately at P1= $3.25 and P2= $3.25.
B. Pure bundling with a price for the bundle PB= $9.25.
C. Pure bundling with a price for the bundle PB= $11.50.
D. Sell the goods separately at P1= $8.25 and P2= $6.

Explanation / Answer

D. Sell the goods separately at P1= $8.25 and P2= $6. Then you get the best price for each item.

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