A local bank sells two services, cheque accounts and ATM card services. Mr Donethat is willing to pay $8 a month for the bank to service his cheque account and $2 a month for unlimited use of his ATM card. Ms Beenthere is willing to pay only $5 for a cheque account but is willing to pay $9 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.
-According to the information provided, if the bank is unable to use tying, what is the profit-maximising price to charge for a cheque account?

Question

Quizplus · Accepted Answer

Since the bank cannot use tying, customers can choose to buy the services independently. Mr Donethat is willing to pay $8 for a cheque account, and Ms Beenthere is willing to pay only $5 for it. Therefore, if the bank charges more than $5 for a cheque account, it will lose Ms Beenthere's business. Thus, the profit-maximizing price to charge for a cheque account is $5.

A Local Bank Sells Two Services, Cheque Accounts and ATM