Question

1 Bundling Suppose that a firm sells two different goods, A and B, to two different potential customers (i.e., consumer 1 and consumer 2). The firm has a marginal cost of zero dollars per unit of each good. Each customer buys at most one unit of either good, depending on whether the price exceeds or is less than the consumer's valuation. The table below shows the maximum willingness to pay for each consumer and good: Maximum Willingness to Pay Product A Product B Both Products $8.4 $18.9 $27.3 $9 $23 $32 Consumer 1 Consumer 2 1.1 (10 points) What would be the optimal prices charged by the firm (i.e., PA and Pb) and the total revenue raised by the firm if it offered the two products separately (i.e., uniform pricing)? Explain.

Q1.1-1.3 thanks

Answer 1

2.1) consumer purchases the product which have. high utility which means they consider the Surplus which has greater value Suoplus - Maximum willingness to pay Actual poice of the good. for example if consumer is willing to pay & 10 but actual price of good = $6 then the Surplus - $4 Given that consumer 1 willkorg to pay 18 n for Product A and consumer 2 willing to 49 for the same. so here Susplus = 9.8.4 = 0.6 So surplus must be equal or greater than - 0.6 to achieve optimal profits

from price the given data the can see the highest for produd B that is purchased by 08 Consumer 2 which 823 So here the optimal ponce would be difference. of consumer z's maximum willingness to pay for produd B and surplus. Surplus - Consumer 2's maximum uillingness to pay Product B - optimal price opd 0.6= 23- optimal price optimal price = 23-0.6 = 22.4 Product & optimal parce = $22.4 The optimal price of produd A= 88.4 which is maximum willingness to pay by Consumer 1

offered. Total revenue salsed by the the tulo products separately from if it $328 he 1.2) Consumer 1 purchase the both products for $27.3 and consumer a purchase the. beth products for $328 $32. So, here consumer z's willingness pay is. greater than consumer is willingnesspay so total revenue raused by a bundling. strategy = $32 13) Nc. bending is not more profitable strategia than marketing the two produd separately because sepascide pooduds will get the maxim. - um profits with selected and targeted. consumer and we can see $32.80 8.30