Answer Happy

Attempts Average/3 9. Is bundling profitable? Suppose that Rosa is the owner of the only nonmotorized water sports rental shop on a small lake in New York. At Rosa's shop, customers can rent a variety of items such as canoes, paddle boats, tubes, and windsurfers. Assume that the marginal cost of renting out any of these items is $3 per item. Moreover, there are only two types of customers-college students and retired people-and there are equal numbers of each type of customer. The following table shows the willingness to pay of both customer types for rowboats and tubes. Willingness to Pay (Dollars) (Dollars) College Students Retired People Item Rowboats 16 20 Tubes 6 10 for a tube rental. At If Rosa rents out rowboats and tubes separately, the best she can do is to charges for a rowboat rental and 5 these prices, her total profit is $ from a market consisting of one of each type of customer. Now, suppose that Rosa will allow customers only to purchase a rental bundle for rowboats and tubes, with no option of renting either item individually. In this case, the bundle price that maximizes her profit is 5 1, which yields a total profit of 5 Given the valuations in the previous table, it the valuations of both consumer types are profitable for Rosa to bundle her water sport equipment. This is due, in part, to the fact that correlated.