The following table gives the valuations of fruit juices and health drinks by two groups of consumers in the city of Vanilla.A single producer of both products controls the entire market for beverages in this city and is considering strategies to bundle one bottle of health drink with one bottle of fruit juice.Assume that the marginal cost of supplying both varieties is $2 each.

$$\begin{array} { c | c | c | }
\hline \text { Products } & \text { Group 1 } & \text { Group 2 } \
\hline \text { Health drink } & \$ 15 & \$ 6 \
\hline \text { Fruit Juices } & \$ 8 & \$ 20 \
\hline
\end{array}$$
-Refer to Table .If the monopolist bundles the two goods, such that they are no longer available individually, what is the maximum price he can charge for the bundle and what will be his profit?

Question

The following table gives the valuations of fruit juices and health drinks by two groups of consumers in the city of Vanilla.A single producer of both products controls the entire market for beverages in this city and is considering strategies to bundle one bottle of health drink with one bottle of fruit juice.Assume that the marginal cost of supplying both varieties is $2 each.

$$\begin{array} { c | c | c | } 
\hline \text { Products } & \text { Group 1 } & \text { Group 2 } \
\hline \text { Health drink } & \$ 15 & \$ 6 \
\hline \text { Fruit Juices } & \$ 8 & \$ 20 \
\hline
\end{array}$$
-Refer to Table .If the monopolist bundles the two goods, such that they are no longer available individually, what is the maximum price he can charge for the bundle and what will be his profit?

Quizplus · Accepted Answer

The monopolist can charge a maximum price of $23 for the bundle, which will earn him a profit of $38. This is because the highest price that Group 1 is willing to pay for the bundle is $23, and the highest price that Group 2 is willing to pay for the bundle is $26. The monopolist's marginal cost of producing the bundle is $4, so his profit is $23 - $4 = $19 per bundle. Since he sells 2 bundles, his total profit is $38.

The Following Table Gives the Valuations of Fruit Juices and Health