Purchase Solution

# Bundles and reservation price summary

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Five different consumer types exist (A, B, C, D, and E) in equal numbers. They are interested in buying (at most) one of each good at their reservation prices (or at any price lower than their reservation prices).

Easter time is approaching and a pet store is contemplating selling bunny rabbits and baby chicks. Parents seem to like presenting these animals to their children at Easter. Jerry could sell them separately, as a bundle of one rabbit and one chick, or in a mixed bundle format, i.e., sell a rabbit and a chick separately AND also sell a bundle containing one rabbit and one chick.

The table below lists the pet stores estimates of the reservation price of bunny rabbits and of chicks for each of the five consumer types.

Consumer Type Reservation Price for Bunny Rabbits Reservation Price for Baby Chicks
A 5 5.33
B 3 10
C 9 2
D 2 5.33
E 8 5.33

It costs the pet store 3 to produce and sell a bunny rabbit and 3 to produce and sell a baby chick.

What pricing scheme (from the three listed above) should the pet store choose? What prices should they charge? How much greater are their profits under the best scheme than under the second best scheme?

The pet store should do the following pricing scheme:_____________________________

The price of bunny rabbits should be: ______________________
The price of baby chicks should be: _______________________
The price of a bundle of one bunny rabbit and one baby chick should be:________

The best pricing scheme gives __________ more profits than the second best pricing scheme

##### Solution Summary

What pricing scheme (from the three listed above) should the pet store choose? What prices should they charge? How much greater are their profits under the best scheme than under the second best scheme?

##### Solution Preview

Five different consumer types exist (A, B, C, D, and E) in equal numbers. They are interested in buying (at most) one of each good at their reservation prices (or at any price lower than their reservation prices).

Easter time is approaching and a pet store is contemplating selling bunny rabbits and baby chicks. Parents seem to like presenting these animals to their children at Easter. Jerry could sell them separately, as a bundle of one rabbit and one chick, or in a mixed bundle format, i.e., sell a rabbit and a ...

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