question archive A telephone company offers two services: landlines and Internet
A telephone company offers two services: landlines and Internet
Subject:EconomicsPrice:2.87 Bought7
A telephone company offers two services: landlines and Internet. There are two types of customer demographics for these services. One customer demographic values the Internet service at $40/month, but only values landlines at $10/month. The other customer demographic values the Internet service less, at $30/month, but values the landline telephone service at $40/month. The two customer demographics are each comprised of 100 persons. Internet and landlines each cost $30/month to supply to each customer who purchases them (so the cost to supply both products to a customer is $60/month). Which pricing scheme should the telephone company adopt?
a) Price Internet at $40/month and landlines at $40/month.
b) Price Internet at $30/month and landlines at $40/month.
c) Bundle the two goods at a combined price of $70/month.
d) Bundle the two goods at a combined price of $50/month.
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Ans : a ) Price internet at $ 40 / per month and landlines at $ 40 / per month.
Explanation :
The telephone company should adopt the pricing scheme ( Price internet at $ 40 / per month and landlines at $ 40 / per month ) in order to earn more profit. This scheme is more profitable as compared to other schemes available ( option b ,c and d ). This is clearly explained the following tables.
| Total custmer | Price of Internet | Revenue | Price of landlines | Revenue | Total Revenue | Total cost to supply both products @ $60 | Profit |
| 100 | 40 | 4000 | 40 | 4000 | 8000 | 6000 | 2000 |
| 100 | 30 | 3000 | 40 | 4000 | 7000 | 6000 | 1000 |
| Total custmer | Combined price of Internet and Landlines | Total Revenue | Total cost to supply both products @ $60 | Profit |
| 100 | 70 | 7000 | 6000 | 1000 |
| 100 | 50 | 5000 | 6000 | -1000 |
