A monopolist can sell three products, labelled A, B and C. All products are producedat the constant unit cost of SEK 10. There are three buyer types, whose WTPs arereported in Table 1.Show Transcribed Text# of buyers304030ProductsTABLE 1A Bс70 50 3050 40 4030 30 502.1. Suppose that the monopolist wishes to bundle product A with exactly one be-tween product B and product C. Which would be the most profitable of these twobundles? Is bundling the two products included in it actually more profitable thanselling the products separately?2.2. Can you provide an intuitive account for the ranking of the profitability of thetwo bundles established in 2.1?Show Transcribed TextAnswer to Problem 2.Part 1. The profits from the two bundles are TAB= 4900 and 7AC = 6000. Hence,A should be bundled with C. The profit from the optimal bundle is greater than thesum of the profits realised by selling the two products independently, which is equal toTA + TC = 4900 (= πA + 7B).Part 2. Products B and C, separately considered, are effectively identical from theseller's point of view. However, the buyers' WTPs for the product pair (A, B) arepositively correlated, whereas the WTPs for the pair (A,C) are negatively correlated.In the latter case, correlation is also relatively strong and the large demand achievedeven at high prices makes bundling the preferred solution for the seller.

Bundle pricing is a strategic business approach in which various products or services are combined…

A monopolist can sell three products, labelled A, B and C. All products are produced at the constant unit cost of SEK 10. There are three buyer types, whose WTPs are reported in Table 1. Show Transcribed Text 3 C # of buyers | Products A B C 70 50 30 30 40 50 40 40 30 30 30 50 TABLE 1 2.1. Suppose that the monopolist wishes to bundle product A with exactly one be- tween product B and product C. Which would be the most profitable of these two bundles? Is bundling the two products included in it actually more profitable than selling the products separately? 2.2. Can you provide an intuitive account for the ranking of the profitability of the two bundles established in 2.1?

A monopolist can sell three products, labelled A, B and C. All products are produced at the constant unit cost of SEK 10. There are three buyer types, whose WTPs are reported in Table 1. Show Transcribed Text 3 C # of buyers | Products A B C 70 50 30 30 40 50 40 40 30 30 30 50 TABLE 1 2.1. Suppose that the monopolist wishes to bundle product A with exactly one be- tween product B and product C. Which would be the most profitable of these two bundles? Is bundling the two products included in it actually more profitable than selling the products separately? 2.2. Can you provide an intuitive account for the ranking of the profitability of the two bundles established in 2.1?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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