The only nail salon in town offers two services: manicures and pedicures. The salon has two types of customers: one type of customer generally wears sandals, and one type of customer generally wears boots. Sandal wearers are willing to pay $32 for a pedicure and $8 for a manicure. Boot wearers are willing to pay $24 for a pedicure and $24 for a manicure. Assume that the salon can provide each of these services at a marginal cost of $2 per service. There are equal numbers of each type of customer. 1st attempt See Hint Suppose the salon is able to use tying (bundling) to price manicures and pedicures, though it may still also sell each service individually. If the salon wants to maximize profits, it should price the services as follows: Price of the bundle (manicure and pedicure together) = $ Price of a manicure > $ Price of a pedicure = $

The only nail salon in town offers two services: manicures and pedicures. The salon has two types of customers: one type of customer generally wears sandals, and one type of customer generally wears boots. Sandal wearers are willing to pay $32 for a pedicure and $8 for a manicure. Boot wearers are willing to pay $24 for a pedicure and $24 for a manicure. Assume that the salon can provide each of these services at a marginal cost of $2 per service. There are equal numbers of each type of customer. 1st attempt See Hint Suppose the salon is able to use tying (bundling) to price manicures and pedicures, though it may still also sell each service individually. If the salon wants to maximize profits, it should price the services as follows: Price of the bundle (manicure and pedicure together) = $ Price of a manicure > $ Price of a pedicure = $

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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