Q1) A profit maximizing firm manufactures three products X, Y and Z. Firm has no costs. There are three customers 1, 2 and 3. Each customer is eager to buy at most one unit of each of three products. Firm can't price discriminate between customers. Following table presents willingness to pay of each of 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 instance, Customer 1 is eager to pay no more than $10 for buying one unit of product X and Customer 3 is eager to pay no more than $7 for purchasing one unit of product Z.
(i) Compute the price of each product if the firm decides to sell them separately?
(ii) Assume, instead, that the firm decides to sell three products only as a bundle. Compute the price of 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 three customers?
(iv) Can you beleive of pricing and bundling strategy that is more profitable for firm than two strategies discussed above?