Food For Life makes health foods for active, outdoor people. Their three basic products are whey powder,

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Food For Life makes health foods for active, outdoor people. Their three basic products are whey powder, a high- protein strength bar, and a meal additive that has the taste and consistency of sawdust. Research shows that consumers fall into two types (A and B), and these are described in the table below by their reservation prices for the products. Each consumer will demand no more than one unit of any product at their reservation price. The consumers will value a bundle of the products at the sum of the constituent reservation prices. Each product costs $3 to produce. A bundle of all three products costs $9 to produce. Food For Life does not price discriminate.
Food For Life makes health foods for active, outdoor people.

There is an equal number of each consumer type (for simplicity, one of each type). What pricing (profit-maximizing) strategy (among pricing separately, pure bundling, and mixed bundling) would you recommend to Food For Life? Why? Only bundles of all three products need to be considered.

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Managerial Economics Theory Applications and Cases

ISBN: 978-0393912777

8th edition

Authors: Bruce Allen, Keith Weigelt, Neil A. Doherty, Edwin Mansfield

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