A firm produces two products (Goods 1 and 2) and has three consumer types (A, B, and C), each of whom represent 1/3 of the market. The consumers’ willingness to pay for each good is given in the following table: Consumer: GOOD 1 GOOD 2 A $600 $100 B $1000 $50 C $350 $150 a.) Suppose both goods are produced at zero marginal cost. If the goods cannot be bundled, what is the optimal price to charge for each good? b.) If the goods can be bundled, what is the optimal price to charge for each bundle? What is the total profit? Should your firm bundle or not? c.) Suppose the production of each good entails a marginal cost of $80 (so the MC of the bundle is $160).
A firm produces two products (Goods 1 and 2) and has three consumer types (A, B, and C), each of whom represent 1/3 of the market. The consumers’
Consumer: GOOD 1 GOOD 2
A $600 $100
B $1000 $50
C $350 $150
a.) Suppose both goods are produced at zero marginal cost. If the goods cannot be bundled, what is the optimal price to charge for each good?
b.) If the goods can be bundled, what is the optimal price to charge for each bundle? What is the total profit? Should your firm bundle or not?
c.) Suppose the production of each good entails a marginal cost of $80 (so the MC of the bundle is $160). How would this this change your answers to a. and b. above?
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