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 able to use tying to price cheque account and ATM services, what is the profit-maximising price to charge for the 'tied' good?

Question

Quizplus · Accepted Answer

The profit-maximizing price for the tied good is $10. This is because the bank can charge a higher price for the tied good than it could if it were sold separately. In this case, the bank can charge $10 for the tied good, which is more than the $8 that Mr. Donethat is willing to pay for the cheque account and the $9 that Ms. Beenthere is willing to pay for the ATM card.

A Local Bank Sells Two Services, Cheque Accounts and ATM