Solved

Assume That a Local Bank Sells Two Services,chequing Accounts and ATM

Question 186

Essay
Assume that a local bank sells two services,chequing accounts and ATM card services.Each customer chooses to use only one service.Mr.Donethat is willing to pay $8 a month for the bank to service his chequing account and $5 a month for unlimited use of his ATM card.Ms.Beenthere is willing to pay only $5 for a chequing account,but is willing to pay $8 for unlimited use of her ATM card.To keep this example simple,assume that the bank can provide each of these services at zero marginal cost.
a.If the bank is unable to use tying,what is the profit-maximizing price to charge for a chequing account
b.If the bank is unable to use tying,what is the profit-maximizing price to charge for unlimited use of an ATM card
c.If the bank is able to use tying to price chequing account and ATM service,what is the profit-maximizing price to charge for the tied good
d.How much additional profit does the bank make when it switches to the use of a tying strategy to price chequing account and ATM service

Assume that a local bank sells two services,chequing accounts and ATM card services.Each customer chooses to use only one service.Mr.Donethat is willing to pay $8 a month for the bank to service his chequing account and $5 a month for unlimited use of his ATM card.Ms.Beenthere is willing to pay only $5 for a chequing account,but is willing to pay $8 for unlimited use of her ATM card.To keep this example simple,assume that the bank can provide each of these services at zero marginal cost.
a.If the bank is unable to use tying,what is the profit-maximizing price to charge for a chequing account
b.If the bank is unable to use tying,what is the profit-maximizing price to charge for unlimited use of an ATM card
c.If the bank is able to use tying to price chequing account and ATM service,what is the profit-maximizing price to charge for the tied good
d.How much additional profit does the bank make when it switches to the use of a tying strategy to price chequing account and ATM service

Correct Answer:

verifed

Verified

a.$8
b.$8
...

View Answer

Unlock this answer now
Get Access to more Verified Answers free of charge

Related Questions

Unlock this Answer For Free Now!

View this answer and more for free by performing one of the following actions

qr-code

Scan the QR code to install the App and get 2 free unlocks

upload documents

Unlock quizzes for free by uploading documents