Suppose that ABC publishing sells an economics textbook and accompanying study guide. Raheel is willing to pay Rs75 for the text and Rs15 for the study guide. Mariam is willing to spend Rs60 for the text and Rs25 for the study guide. Suppose both the book and study guide have a zero marginal cost of study production. If ABC publishing engages in tying the two products its best strategy is to charge a combined price of ?
Correct answer: C. Rs 85
- A. Rs 60
- B. Rs 90
- C. Rs 85
- D. Rs 75
Explanation
The two bundle valuations are Rs90 for Raheel and Rs85 for Mariam, so pricing the bundle at Rs85 sells to both and earns Rs170. A price of Rs90 sells only one bundle and earns Rs90.
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