Problem 1: Parking Lot Optimization (More Realistic and Complex Pricing)
Suppose your elasticity of demand for your parking lot spaces is -2, and price is $8 per day. If your marginal cost is zero, and your capacity is 80% full at 9 A.M. over the last month, are you optimizing?
Problem 2: Microwave Ovens (Indirect Price Discrimination)
A manufacturer of microwaves has discovered that male shoppers have little value for microwaves and attribute almost no extra value to an auto-defrost feature. Female shoppers generally value microwaves more than men and attribute greater value to the auto-defrost feature. There is little additional cost to incorporating an auto-defrost feature. Since men and women cannot be charged different prices for the same product, the manufacturer is considering introducing two different models. The manufacturer has determined that men value a simple microwave at $70 and one with auto-defrost at $80 while women value a simple microwave at $80 and one with auto-defrost at $150.
If there is an equal number of men and women, what pricing strategy will yield the greatest revenue? What if women compromise the bulk of microwave shoppers?
Problem 3: Bundling (Indirect Price Discrimination)
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 Classes) (Students without Early Classes)
Coffee 70 60
Banana 50 100
The marginal cost of coffee is $10. The marginal cost of a banana is $40. Is bundling more profitable than selling separately? If so, what price should be charged for the bundle?