At a student café, there are equal numbers of two types of customers with the following values. The café owner cannot distinguish between the two types of students because many students without early classes arrive early anyway (i.e., she cannot price-discriminate). Students with Early ClassesStudents without Early ClassesCoffee7363Banana53103 The marginal cost of coffee is 5 and the marginal cost of a banana is 20.The café owner is considering three pricing strategies:1.Mixed bundling: Price bundle of coffee and a banana for 166, or just a coffee for 73.2.Price separately: Offer coffee at 63, price a banana at 103.3.Bundle only: Coffee and a banana for 126. Do not offer goods separately. Assume that if the price of an item or bundle is no more than exactly equal to a student's willingness to pay, then the student will purchase the item or bundle.For simplicity, assume there is just one student with an early class, and one student without an early class. At a student café, there are equal numbers of two types of customers with the following values. The café owner cannot distinguish between the twotypes of students because many students without early classes arrive early anyway (i.e., she cannot price-discriminate).Students with Early ClassesStudents without Early ClassesCoffee7363Banana53103The marginal cost of coffee is 5 and the marginal cost of a banana is 20.The café owner is considering three pricing strategies:1. Mixed bundling: Price bundle of coffee and a banana for 166, or just a coffee for 73.2. Price separately: Offer coffee at 63, price a banana at 103.3. Bundle only: Coffee and a banana for 126. Do not offer goods separately.Assume that if the price of an item or bundle is no more than exactly equal to a student's willingness to pay, then the student will purchase the itemor bundle.For simplicity, assume there is just one student with an early class, and one student without an early class.Price StrategyRevenue from Pricing StrategyCost from Pricing StrategyProfit from Pricing Strategy1. Mixed Bundling2$242. Price Separately2$243. Bundle Only2$2$Pricing strategyyields the highest profit for the café owner.

Question

At a student café, there are equal numbers of two types of customers with the following values. The café owner cannot distinguish between the two types of students because many students without early classes arrive early anyway (i.e., she cannot price-discriminate). Students with Early ClassesStudents without Early ClassesCoffee7363Banana53103 The marginal cost of coffee is 5 and the marginal cost of a banana is 20.The café owner is considering three pricing strategies:1.Mixed bundling: Price bundle of coffee and a banana for 166, or just a coffee for 73.2.Price separately: Offer coffee at 63, price a banana at 103.3.Bundle only: Coffee and a banana for 126. Do not offer goods separately. Assume that if the price of an item or bundle is no more than exactly equal to a student's willingness to pay, then the student will purchase the item or bundle.For simplicity, assume there is just one student with an early class, and one student without an early class. At a student café, there are equal numbers of two types of customers with the following values. The café owner cannot distinguish between the twotypes of students because many students without early classes arrive early anyway (i.e., she cannot price-discriminate).Students with Early ClassesStudents without Early ClassesCoffee7363Banana53103The marginal cost of coffee is 5 and the marginal cost of a banana is 20.The café owner is considering three pricing strategies:1. Mixed bundling: Price bundle of coffee and a banana for 166, or just a coffee for 73.2. Price separately: Offer coffee at 63, price a banana at 103.3. Bundle only: Coffee and a banana for 126. Do not offer goods separately.Assume that if the price of an item or bundle is no more than exactly equal to a student's willingness to pay, then the student will purchase the itemor bundle.For simplicity, assume there is just one student with an early class, and one student without an early class.Price StrategyRevenue from Pricing StrategyCost from Pricing StrategyProfit from Pricing Strategy1. Mixed Bundling2$242. Price Separately2$243. Bundle Only2$2$Pricing strategyyields the highest profit for the café owner.

Accepted Answer

Here, there are two students, “early classes” and “without early classes”. The willingness to pay…

1.	Mixed bundling: Price bundle of coffee and a banana for 166, or just a coffee for 73.
2.	Price separately: Offer coffee at 63, price a banana at 103.
3.	Bundle only: Coffee and a banana for 126. Do not offer goods separately.