A profit maximizing firm produces three products X, Y and Z. The firm has no costs. There are three customers 1, 2 and 3. Each customer is willing to purchase at most one unit of each of the three products. The firm cannot price discriminate between customers. The following table presents the willingness to pay of each of the three customers for each of the three products:
|
Product
|
|
|
|
|
x
|
y
|
Z
|
|
Customer
|
|
|
|
|
1
|
10
|
12
|
5
|
|
2
|
8
|
14
|
0
|
|
3
|
4
|
16
|
7
|
So, for example, Customer 1 is willing to pay no more than $10 for purchasing one unit of product X and Customer 3 is willing to pay no more than $7 for purchasing one unit of product Z.
i) What will be the price of each product if the firm decides to sell them separately?
ii) Suppose, instead, that the firm decides to sell the three products only as a bundle.What will be the price of the bundle in this case?
iii) Which of the two alternatives above is better for the firm?
a) Which of the two alternatives above is better for each of the three customers?
iv) Can you think of a pricing and bundling strategy that is more profitable for the firm than the two strategies discussed above?