A ready-to-eat cereal manufacturer faces two types of consumers, adults and children, having the following schedule of gross surpluses for each additional unit of cereal consumed
OUNCE OF
CEREAL
|
MARGINAL
SURPLUS THIS
OUNCE
PROVIDES
ADULTS IN CENTS |
MARGINAL SURPLUS THIS
OUNCE
PROVIDES CHILDREN IN CENTS |
|
First
|
20
|
40
|
|
Second
|
16
|
32
|
|
Third
|
12
|
24
|
|
Fourth
|
8
|
16
|
|
Fifth
|
4
|
8
|
|
Sixth
|
0
|
0
|
|
Seventh
|
0
|
0
|
Cereal costs $0.15 per ounce to produce.
The manufacturer has full information about types because adults hate sweet children's cereal and children hate the fiber-filled adult cereal.
What is the optimal bundle to offer adults and to children in this full-information setting?