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The reservation prices (in dollars) of three classes of demanders (classes A,B, andC) for Ricky Parton's (a Latin country-western singer) compact disks are given in the table that follows:

Class CD 1 CD 2
A 11 5
B 8 9
C 9 10

It costs $4 to produce and distribute each compact disk. The company can sell each CD separately, can put them together as a boxed set (that is, as a pure bundle), or can sell them in a mixed bundling format (offer the CDs both separately and as a boxed set). Assume that each demander wants only one of each of the CDs at the reservation price (or at any lower price) and that there are an equal number of demanders in each class. For simplicity, assume that the only costs are those mentioned here.

a. What pricing method would you advise Ricky's company to use?

b. How much better (profi twise) is the best pricing method than the second most profi table pricing method?

Microeconomics, Economics

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