Three consumers, John, Kate, and Lester, are in the market for two goods, dates and eggs. Their willingness to pay for dates and eggs is given in the table below:
a. If you are a local farmer who can produce dates and eggs for free, what is the optimal price for dates and eggs if you price them individually? How much profit will you generate?
b. If you bundle dates and eggs together, what price should you set for a bundle containing one package of dates and a dozen eggs? How much profit will you generate?
c. Is there any advantage to mixed bundling in this case? Why or why not?
d. Suppose that the cost of producing dates and eggs rises to $1.00 per package and $1.00 per dozen, respectively. Now is there any advantage to mixed bundling? Why or why not? Explain your answer with a numerical illustration.
e. What accounts for the change in optimal strategy when costs change?