Mecn Assignment

1. a) Repentium should be priced at $300 when quantity will be 1M units sold

Only for Power users at $300 🡪 Profit = (300-50)*1M = $250M

Only Power users and to Surfers at $125 🡪 Profit = (125-50)*(1M+2M) = $225M

At any price above $50 and below $125, the firm captures lesser profit for the number of buyers. At any price between $125-$300, the firms fails to capture all the consumer surplus

b) Lentil’s profit at price of $300 is $250M

c) Power users have $0 consumer surplus

d) Surfers have $-350M in consumer surplus

e) Celery Root should be priced at $125. Lentil will be able to capture profits from both Surfers and power users. As profits captured from pricing Celery Root to Power users at $150. Profit = (150-55)*1M = 95M. It is less than profits captured from pricing Repentium at $300, CeleryRoot should serve only the Surfer target audience.

f) $274. Power users are willing to pay $150 for a Celery Root chip which from(e) should be priced at $125, they have a consumer surplus of $25 from purchasing CeleryRoot. If consumers choose the chip for which he will have maximum consumer surplus, then Repentium must be priced less than $275.

g) Lentil’s Profits = $364M Profit from Repentium = (274 - 50)*1M = $224M Profit from CR = (125 – 55)*2M = $140M h) Power users have (300-274 = ) $26 consumer surplus

1. Surfers now have $0 consumer surplus

j) The profit maximizing price does not change. There is no change to the categories, just the scale of quantity. Lentil will earn a maximum additional profit of (125-55)*1M = $70M.

2)

a) Profit maximizing price for NT is $8.

At Price $11, Profit = (11 – 0)*1M = $11M

At Price $8, Profit = (8 – 0)*2M = $16M

 b) Profit maximizing price for SSI is $10

Price = $13, Profit = (13 – 0)*1M = $13M

Price  =$10, Profit = (10 – 0)*2M = $20M

c) The Bundle should be priced at $21

WTP for Bundle = Price of NT + Price of SSI

Type 1: 11 + 10 = $21

Type 2: 8 + 13 = $21

As both types of customers have WTP of $21 for the bundle, optimal price is $21

d) Profit maximizing price for SSI is $13

At Price $15, Profit = (15 – 0)*1M = $15M

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