2. A firm produces two songs: song A and song B. Both songs are produced by a monopolist. Two consumers are considering buying these songs. The first consumer’s willingness-to-pay (WTP) for song A is 1, and her WTP for song B is 2. The second consumer’s WTP for song A is 3, and her WTP for song B is 1. Assume that marginal costs for both products are zero.(1) Suppose that both songs need to be sold separately. What should be the optimal price for each song? Also, compute the firm’s profit under the optimal a la carte pricing.(2) Now suppose that bundling is the only option. In other words, the monopolist only sells two songs together. What should be the optimal price for the bundle? Also, compute the firm’s profit under the optimal bundling.

Monopoly: It is a market structure in which there exists a single producer of the commodity having…

Answered: A firm produces two songs: song A and…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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