Assume That a Local Bank Sells Two Services,chequing Accounts and ATM

question 111

Essay

Assume that a local bank sells two services,chequing accounts and ATM card services.Each customer chooses to use only one service.Mr.Donethat is willing to pay $8 a month for the bank to service his chequing account and $5 a month for unlimited use of his ATM card.Ms.Beenthere is willing to pay only $5 for a chequing account,but is willing to pay $8 for unlimited use of her ATM card.To keep this example simple,assume that the bank can provide each of these services at zero marginal cost.
a.If the bank is unable to use tying,what is the profit-maximizing price to charge for a chequing account
b.If the bank is unable to use tying,what is the profit-maximizing price to charge for unlimited use of an ATM card
c.If the bank is able to use tying to price chequing account and ATM service,what is the profit-maximizing price to charge for the tied good
d.How much additional profit does the bank make when it switches to the use of a tying strategy to price chequing account and ATM service

---

Definitions:

Learning

A systematic, relatively permanent change in behavior that occurs through experience.

Priming

The activation of information that people already have in storage to help them remember new information better and faster.

Multitasking

The ability to deal with more than one task simultaneously.

Divided Attention

Concentrating on more than one activity at the same time.