A restaurant has three types of customers. A third of its customers, Type A, are willing to spend $5 on an appetizer but only $2 on a dessert. Another third, Type B, are willing to spend $3.50 on an appetizer and $3.50 on a dessert. The remaining third, Type C, are willing to spend only $2 on an appetizer but $5 on a dessert. All three types are willing to spend $10 on the main course.
It costs the restaurant a constant $2 to prepare an appetizer or a dessert, and $7 to prepare the main course.
i. Calculate the profit maximizing prices and profits of the three goods if the firm charges separate prices for all three items.
ii. Calculate the profit maximizing prices and profits if the firm bundles all three items together in a pure bundling scheme.
iii. Calculate the profit maximizing prices and profits if the firm offers a mixed bundling scheme with all items together or with them each separate.
iv. Which strategy should the firm choose?