solution

GeeM has a sporty wheel package and a luxury interior package that it is considering

offering to its auto buyers. GeeM has estimated that there are three

consumer types (A, B, and C—all of equal magnitude—for simplicity, consider

it one of each type). Consumers want (at most) one of each package. It costs

GeeM 5 to produce a sporty wheel package and 10 to produce a luxury interior

package. It will cost GeeM 15 to produce a bundle consisting of both packages.

The following are the consumer reservation prices for each package:

A consumer’s reservation price for a bundle consisting of sporty wheels and

a luxury interior is the sum of the individual component reservation prices.

GeeM does not price discriminate.

GeeM has solicited your help in pricing the wheel and interior package.

You know that they could sell the packages separately, as a pure bundle, or as

a mixed bundle. Of those three pricing strategies, which one would maximize GeeM’s

profit? What are the prices (what is the price) that you suggest? How much

better is the best pricing strategy than the second best pricing strategy?