8. Is bundling profitable?Suppose that Ana is the owner of the only nonmotorized water sports rental shop on a small lake in New Hampshire. At Ana's shop, customers canrent a variety of items such as canoes, paddle boats, tubes, and windsurfers. Assume that the marginal cost of renting out any of these items is $2per item. Moreover, there are only two types of customers-college students and retired people-and there are equal numbers of each type ofcustomer. The following table shows the willingness to pay of both customer types for rowboats and kayaks.ItemRowboatsKayaksWillingness to Pay(Dollars)College Students153(Dollars)Retired People255If Ana rents out rowboats and kayaks separately, the best she can do is to charge $25 for a rowboat rental andthese prices, her total profit is $30 from a market consisting of one of each type of customer.Given the valuations in the previous table, itvaluations of both consumer types are$5 for a kayak rental. AtNow, suppose that Ana will allow customers only to purchase a rental bundle for rowboats and kayaks, with no option of renting either itemindividually. In this case, the bundle price that maximizes her profit is $ , which yields a total profit of $profitable for Ana to bundle her water sport equipment. This is due, in part, to the fact that thecorrelated.

On the income statement, profit is known as net income, but most people refer to it as the bottom…

3. Is bundling profitable? Suppose that Ana is the owner of the only nonmotorized water sports rental shop on a small lake in New Hampshire. At Ana's shop, customers can rent a variety of items such as canoes, paddle boats, tubes, and windsurfers. Assume that the marginal cost of renting out any of these items is $2 per item. Moreover, there are only two types of customers-college students and retired people-and there are equal numbers of each type of customer. The following table shows the willingness to pay of both customer types for rowboats and kayaks. Item Rowboats Kayaks Willingness to Pay (Dollars) College Students 15 3 (Dollars) Retired People 25 5 of Ana rents out rowboats and kayaks separately, the best she can do is to charge $25 for a rowboat rental and hese prices, her total profit is $30 from a market consisting of one of each type of customer. Given the valuations in the previous table, it valuations of both consumer types are $5 for a kayak rental. At Now, suppose that Ana will allow customers only to purchase a rental bundle for rowboats and kayaks, with no option of renting either item ndividually. In this case, the bundle price that maximizes her profit is $ , which yields a total profit of $ profitable for Ana to bundle her water sport equipment. This is due, in part, to the fact that the correlated.

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter10: Monopolistic Competition And Oligopoly

Section: Chapter Questions

Problem 16CTQ: Would you rather have efficiency or variety? That is, one opportunity cost of the variety of...