You are the manager of a firm of a firm that products X and Y at zero cost. you

Question

You are the manager of a firm of a firm that products X and Y at zero cost. you know that different types of consumers value your two products differently, but you areunable to identify these consumers individually at the time of the sale. In particular, you know there are three types of consumers (1, 000 of each type) with the following valuations for the two products: What are your firm's profits if you charge $25 for product X and $5O for product Y? What are your profits if you charge $60 for product X and $140 for product Y? What are your profits if you charge $110 for a bundle containing one unit of product X and one unit of product Y? What are your firm's profits if you charge $175 for a bundle containing one unit of X and one unit of Y, but also sell the products individually at a price of $60 for product X and $140 for product Y?

Explanation / Answer

a) At Px= $25 and Py = $ 50, All consumers will buy the products As cost is 0 for both products and assuming that they buy that product which is cheaper and lower than that they valued. Profit = Revenue = 1000*25 + 1000*50 + 1000*50 = 125000 ($) (ANSWER) b) At Px= $60 and Py = $ 140, Profit = R = 1000*60 +1000*140 = 200000 ($) (from 1st and 3rd consumer only) (ANSWER) c) At P(x and y) = $110 customer 1 and 2 will buy, Profit = R = 1000*2*110 = 220000 ($) (ANSWER) d) At Px= $60 and Py = $ 140 or P(x and y) = $175 , Profit = R = 1000*60 + 1000*175 + 1000*140 = 375000 ($) (ANSWER)

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