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Homework answers / question archive / You are the manager of a local sporting goods store and recently purchased a shipment of 60 sets of skis and ski bindings at a total cost of $25,000 (your wholesale supplier would not let you purchase the skis and bindings separately, nor would it let you purchase fewer than 60 sets)

You are the manager of a local sporting goods store and recently purchased a shipment of 60 sets of skis and ski bindings at a total cost of $25,000 (your wholesale supplier would not let you purchase the skis and bindings separately, nor would it let you purchase fewer than 60 sets)

Accounting

You are the manager of a local sporting goods store and recently purchased a shipment of 60 sets of skis and ski bindings at a total cost of $25,000 (your wholesale supplier would not let you purchase the skis and bindings separately, nor would it let you purchase fewer than 60 sets). The community in which your store is located consists of many different types of skiers, ranging from advanced to beginners. From experience, you know that different skiers value skis and bindings differently. However, you cannot profitably price discriminate because you cannot prevent resale. 
There are about 20 advanced skiers who value skis at $400 and ski bindings at $275; 20 intermediate skiers who value skis at $300 and ski bindings at $400; and 20 beginning skiers who value skis at $200 and ski bindings at $350. 
What is your maximum revenue if you charge a separate price for skis and bindings? 

What is your maximum revenue if you sell skis and bindings as a bundle? 

 

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a)

Seller charging for ski= 200

Total revenue= 200* 60

= 12000

 

If the seller is selling at 300, 40 buyers would buy ie those who have price as 400 and 300.

so,

Revenue = 300*40

=12000

 

If the seller is selling skis at 400, only 20 advanced ones would buy.

So,

Revenue = 400*20

=8000

 

So revenue would be same and highest when skis are sold at either $200 or $300

 

the case for ski bindings;

If it is sold at $275 which is the minimum price.

Revenue = 275*60

=$16500

 

If it is sold for 350,40 buyers would buy;

Revenue= 350*40

=14000

 

And 20 buyers would buy when price is $400 .

So revenue would be $8000.

 

Hence,

Maximum revenue is when it is sold at $275.

 

So total revenue for separately selling would be;

= 16500+12000

= $28500

 

b)

Bundle of advanced for advance= 400+ 275= 675

Bundle of advanced for intermediate= 300+ 400= 700

Bundle of advanced for beginners= 200+ 350= 550

 

if the bundle is sold at 550;

All sold at = 550*60

=33000

 

if the bundle is sold at 675;

All sold at = 675*40

=27000

 

if the bundle is sold at 700;

All sold at = 700*20

=14000

 

So maximum revenue when bundling is done is $33000

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