Question

A B WTP- WTP- Food 450 WTP Drink 150 WTP- Bundle 600 WTP- Food 450 Drink 150 WTP- Bundle 600 Tom Tom 500 Rick 600 100 700 Rick 200 500 350 Harry 200 250 100 450 250 Harry In one of the tables above, it does not make any sense for the firm to offer the goods as a bundle since the producer surplus the firm will receive will be the same with or without the bundle. Which table is it? a. Table B b. Table A

Answer 1

In table A, the best price for food is $450 since two consumers are purchasing it and revenue would be $900 which is more than when one is consuming at $500 and when three are consuming at $250 (ie $750).

So when there is no bundling price of food is $450.

Similarly for drinks, the best price could be either $100 for three ie $300 as revenue or $150 for two consumers ie $300.So the price could be either of them and the revenue is $300.

Now if bundling is preferred and $600 is the price, then two consumers would purchase and the revenue would be $1200 but if price is $450, then revenue is $1350 which is more than without bundling.

In the second table the explanation for separately sold goods would be the same and the revenue hence generated would also be $1200, but when the bundling is done, then selling three bundles at $350 would be less profitable than selling two at $600 and hence the revenue here would also be the same as without bundling ie $1200.

So the answer would be option A) Table B as the profits with and without bundling are the same.

(you can comment for doubts)