You just bought a bagel shop. A market study shows your customers are willing to pay for a bagel into 9 equal-sized groups: ($3.00, $2.75, $2.50, $2.25, $2.00, $1.75, $1.50, $1.25, $1.00). [This means that one group of customers is willing to pay a maximum of $3.00 for a bagel, another equal-sized group is willing to pay a maximum of $2.75, a third equal-sized group will pay a maximum of $2.50, and so on.] Each group has 100 customers so there is maximum potential for 900 customers. All of your costs are fixed except labor and materials, which cost $1.10 per donut/coffee combo.
a. What price should you charge for a donut/coffee combo?
b. Suppose your market research tells you that the four customer groups with the lowest willingness to pay are all students. Should you offer a student discount? If so, how much?