A soft drink company makes a product called PowerJuice, which can be sold in one-liter and two-liter bottles.
Suppose that consumers break down into two groups. Individual consumers in
group A have a daily willingness to pay (WTP) for one liter of PowerJuice of $7.5 and WTP for two liters of PowerJuice of $11 (i.e., WTP for the 2nd liter is $3.5). Group B individuals have a
daily WTP of $9 for one liter of PowerJuice and $15 for two liters of PowerJuice. No customer would purchase more than 2 liters per day.
The marginal cost of producing PowerJuice is $2 per liter. The cost of the bottle is $1 , no matter whether it holds 1 liter or 2 liters. There are 1000 people in Group A and 1200 in Group B, and the company cannot identify members of each group in a way that would allow them to charge different prices for the same size bottle of PowerJuice depending on who was making the purchase.
Which size(s) of Powerjuice should the company sell, what prices should PowerJuice charge, and
what are their profits? Please be sure to explain your answers.
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