7. You are the manager of a firm that produces X and Y at zero cost. You know th
ID: 1250523 • Letter: 7
Question
7. You are the manager of a firm that produces X and Y at zero cost. You know that different types of consumers value your two products differently, but you are unable 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:
Consumer Type Product x Product Y
1 $ 60 $50
2 $ 50 $ 125
3 $ 25 $ 140
a. What are your firm's profits if you charge $25 for product X and $ 50 for product Y?
b. What are your profits if you charge $60 for product X and $140 for product Y?
c. What are your profits if you charge $110 for a bundle containing one unit of product X and one unit of product Y?
d. 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. With given prices we would sell 3000 products of each, so profit for the firm would be: 3,000 ($25+$50) = $225,000 b. With given prices only customer type 1 would buy product X and only customer type 3 would buy product Y. So, profits would be: 1,000 ($60+$140) = 200,000 c. With given prices only customer type 1 would buy the bundle. Profits would be: 1,000 ($110) = $110,000 d. With given prices, only customer type 2 would buy the bundle. Additionally, customer type 1 would buy product X and customer type 2 would buy product Y. Profits in this scenario would be: 1,000 ($175) + 1,000 ($60) + 1,000 ($140) = $375,000
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.