4. A firm produces two products, the demands for which are independent. Both products have zero marginal cost. The firm faces four consumers with the following reservation prices: Consumer 1 2 3 4 Good 1 25 40 80 100 Good 2 100 80 40 25 a. Show the optimal price and quantity of Good 1 (unbundled) on a graph with the firm's demand and marginal revenue. b. Show the optimal price and quantity of the bundle (Goods 1 and 2) on a graph with the firm's demand and marginal revenue (for the bundle). c. Should the firm bundle these goods? Compare the firm's profits under both scenarios. d. Which approach do consumers prefer? Compare consumer surplus under both scenarios. e. Now suppose that MC = 30. Reassess the optimal prices, quantities, and profit with and without bundling.

4. A firm produces two products, the demands for which are independent. Both products have zero marginal cost. The firm faces four consumers with the following reservation prices: Consumer 1 2 3 4 Good 1 25 40 80 100 Good 2 100 80 40 25 a. Show the optimal price and quantity of Good 1 (unbundled) on a graph with the firm's demand and marginal revenue. b. Show the optimal price and quantity of the bundle (Goods 1 and 2) on a graph with the firm's demand and marginal revenue (for the bundle). c. Should the firm bundle these goods? Compare the firm's profits under both scenarios. d. Which approach do consumers prefer? Compare consumer surplus under both scenarios. e. Now suppose that MC = 30. Reassess the optimal prices, quantities, and profit with and without bundling.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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