Scenario 16-5
Assume that a local bank sells two services, checking accounts and ATM card services. Mr. Donethat is willing to pay $8 a month for the bank to service his checking account and $2 a month for unlimited use of his ATM card. Ms. Beenthere is willing to pay only $5 for a checking account, but is willing to pay $9 for unlimited use of her ATM card. Assume that the bank can provide each of these services at zero marginal cost.
-Refer to Scenario 16-5.If the bank is unable to use tying,what is the profit-maximizing price to charge for unlimited use of an ATM card?

Question

Quizplus · Accepted Answer

Without the ability to use tying, the bank must consider the preferences and willingness to pay of each customer separately. Mr. Donethat is willing to pay $2 for unlimited use of his ATM card while Ms. Beenthere is willing to pay $9. Since the bank can provide the service at zero marginal cost, it makes sense to charge a price equal to each customer's willingness to pay. Therefore, the profit-maximizing price for unlimited use of an ATM card is $9.

Scenario 16-5 Assume That a Local Bank Sells Two Services, Checking Accounts