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Mathematics Revenue Management Caldentey ASSIGNMENT Concept Check #1 INSTRUCTIONS: Please submit this group assignment on Canvas. Make sure to

Mathematics Revenue Management
Caldentey

ASSIGNMENT
Concept Check #1

INSTRUCTIONS: Please submit this group assignment on Canvas. Make sure to

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Mathematics Revenue Management
Caldentey

ASSIGNMENT
Concept Check #1

INSTRUCTIONS: Please submit this group assignment on Canvas. Make sure to include the names
of all members in the group and attached all relevant material.

Let us revisit the bundle-pricing problem discussed in class. A small restaurant offers Wine,
Pizza and the bundle Wine+Pizza. The manager is planning to add a third item to the menu:
homemade Gelato and wants to determine the right bundling strategy and pricing to use. After
some research, she has produced the following market data:

Consumer Class Wine Pizza Gelato Wine+Pizza Wine+Gelato Pizza+Gelato Wine+Pizza+Gelato Market Size
1 9 1.5 1 10.5 10 2.5 11.5 10
2 8 5 2 13 10 7 15 8
3 4.5 8.5 7 13 11.5 15.5 20 6
4 2.5 9 4 11.5 6.5 13 15.5 4

BundlesIndividual Items
Willigness to Pay

Note that the rightmost column is the market size for each consumer class.

Formulate a linear program (similar to the one discussed in class for the Cambridge Corporation)
to compute the optimal (incentive compatible) prices for each of the seven products.

What are these optimal prices? What is the product that each consumer class will end up buying
under these prices? What is the restaurant revenue?

(Note: Clearly state any assumptions that you make. Also, please make sure to upload your
Excel file on Canvas as part of your submission.)

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