Suppose there are three types of customers who frequent Louisiana Fried Chicken (LFC), a fast food chain that sells chicken and biscuits. (For simplicity, assume an equal number of each type of customer) These customers have the following valuations ("reservation prices") for chicken and biscuits:
Consumer Chicken Biscuits
1 $12 $1
2 $10 $3
3 $9 $4
Suppose the fully allocated cost of making an order of chicken is $6 and the fully allocated cost of making an order of biscuits is $2.50.
If LFC does not know the identities of the customers (i.e. is unable to price discriminate) and sets one price for chicken (regardless of who buys) and one price for biscuits (regardless of who buys), what would those prices be?
a. Price of Chicken = $9 and the Price of Biscuits = $1
b. Price of Chicken = $12 and the Price of Biscuits = $4
c. Price of Chicken = $10 and the Price of Biscuits = $3
d. Price of Chicken = $9 and the Price of Biscuits = $4