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Solution for Managerial Economics 4th Edition Chapter 14, Problem 1

by Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
147 Solutions 23 Chapters 113958 Studied ISBN: 9781305259331 Economics 5 (1)

Chapter 14, Problem 1 : 14-1 Barbie Dolls and Accessories Why...

14-1 Barbie Dolls and Accessories

Why might Mattel set a much lower contribution margin on its Barbie dolls than on the accessories for the dolls?

Step-By-Step Solution

14-1This is a form of metering or “giving away the razor to sell the blades.” Consumers differ in their willingness to pay for “the Barbie experience.” Those who value it a lot are probably going to purchase more accessories than those who value it less. Purchases of accessories ‘meter’ consumers’ willingness-to-pay for the experience. A higher margin for the accessories allows Mattel to extract more of the surplus from the high types without losing the low types.

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