Scenario 17-5
Assume that a local restaurant sells two items, salads and steaks. The restaurant's only two customers on a particular day are Mr. Carnivore and Ms. Leafygreens. Mr. Carnivore is willing to pay $20 for a steak and $7 for a salad. Ms. Leafygreens is willing to pay only $8 for a steak, but is willing to pay $12 for a salad. Assume that the restaurant can provide each of these items at zero marginal cost.
-Refer to Scenario 17-5. How much additional profit can the restaurant earn by switching to the use of a tying strategy to price salads and steaks rather than pricing these goods separately?
A)$20
B)$12
C)$7
D)$6

Question

Quizplus · Accepted Answer

By using a tying strategy, the restaurant can bundle a steak and a salad together and charge a price that maximizes the combined willingness to pay of both customers. Mr. Carnivore values the bundle at $27 ($20 for steak + $7 for salad), and Ms. Leafygreens values it at $20 ($8 for steak + $12 for salad). By setting the bundle price at $20, both customers will buy, resulting in a total revenue of $40. If priced separately, the maximum revenue is $34 ($20 from Mr. Carnivore's steak and $12 from Ms. Leafygreens' salad, plus $2 from Ms. Leafygreens' steak). The additional profit from tying is $40 - $34 = $6.

Scenario 17-5 Assume That a Local Restaurant Sells Two Items, Salads and Salads