2. (38 pts) You are a profit-maximizing firm. Suppose you face two types of customers, Coat-Lovers type (50%)
and Easy-Going type (50%). These customers shop in your specialty clothing store. Consumers of Coat-Lovers
type are willing to pay [tex][tex]$90_ for a coat and $[/tex][/tex]35 for a pair of pants. Consumers of Easy-Going type are willing
to pay [tex][tex]$65 for a coat and $[/tex][/tex]55_ for a pair of pants. For simplicity let's assume that there are only two
customers in this market and that total fixed costs equal zero to produce either goods.
Your firm faces no competition but bears the cost of making the clothes: [tex][tex]$25 per coat and $[/tex][/tex]20 per pair of
pants (i.e. MC of making coat = [tex][tex]$25 and MC of making pants = $[/tex][/tex]20). You do not have the power to price
discriminate. You offer the same prices to all your customers.
2a. Suppose you post a price for a coat and a price for pants. Knowing the customers' reservation price
(willingness to pay) for each product, what is the profit-maximizing price for coat and for pants that the
firm should charge?
I
2b. Suppose instead that you only offer a bundle of one coat and one pair of pants (which we would
call a suit.) What is the profit-maximizing price to charge for the suit? Compare the profit that the firm
makes in 2b (bundling) vs. 2a (non-bundling)!