Reference no: EM13125134

In order to perform a certain printing job, John needs a printer and 100 units of (printing) paper.

Suppose that the value to John of completing this project is $1000, that is, if he completes the project he will receive a payment of $1000.  Suppose that after completing the job, the printer becomes obsolete.  Please answer the following questions:

a) Suppose that you are the only seller of paper in the market, and you know that John already has a printer, how much will you charge him for the (100 units of) paper?

b) Suppose that you know that John has just bought a printer for $800, how much will you charge him for the of paper?

c) Suppose that John does not own a printer and you are the only store in town that sells printers and paper, how much will you charge him for the paper and how much will you charge him for the printer?

d) Suppose that John can buy the paper on the market and the market price (for 100 units) is $50.  Suppose that you are the only store in town that sells printers, how much will you charge him for the printer in that case?

e) Suppose that you are the only one that sells printers but you don't sell paper. Suppose that there is another seller who is the only one that sells paper in the market.  Suppose that the order of moves is as follows:  First John comes to your store and you decide on the price to charge him for the printer. Then, after John has bought the printer he goes to the store that sells paper, and that store decides on the price to charge him for the paper (knowing that he has already bought the printer).  What is the highest price you can charge John for the printer in that case? Can you think of another pricing strategy for yourself that will give you a higher profit in this case?

f) In the context of the case described in part e above, someone has proposed that you use the following pricing strategy. The consumer will pay P when he buys the printer and he will be entitled to compensation in the amount of R, if he decides to return the printer, within a certain period of time, without actually using it.  If you decide to adopt this policy, what will be your profit maximizing P and R? What will be the price for the paper in this case?

In all the questions above assume that all the stores know that the value of the project to John is $1000.