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?

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter16: Government Regulation

Section: Chapter Questions

Problem 10E

See similar textbooks

Similar questions

How does the demand curve perceived by a monopolist compare with the market demand curve?
Draw a monopolists demand curve, marginal revenue, and marginal cost curves. Identify the monopolists profit-maximizing output level. Now, think about a slightly higher level of output (sayQ0+1). According to the graph, is there any consumer willing to pay more than the marginal cost of that new level of output? If so, what does this mean?
How can a monopolist identify the profit-maximizing level of output if it knows its total revenue and total cost curves?
What is the usual shape of a marginal revenue cuwe for a monopolist? Why?
Imagine that you ale managing a small firm and thinking about entering the market of a monopolist. The monopolist is currently charging a high price, and you have calculated that you can make a nice profit charging 10 less than the monopolist. Before you go ahead and challenge the monopolist, what possibility should you consider for how the monopolist might react?
Imagine a monopolist could charge a different price to every customer based on how much he or she were willing to pay. How would this affect monopoly profits?
Is a monopolist allocatively efficient? Why or why not?
How does the quantity produced and price charged by a monopolist compare to that of a perfectly competitive film?
Classify the following as a government-enforced barrier to entry, a banker to entry that is not government-enforced, or a situation that does not involve a barrier to entry. A patented invention A popular but easily copied restaurant recipe An industry where economies of scale are very small compared to the size of demand in the market A well-established reputation for slashing prices in response to new entry A well-respected brand name that has been carefully built up over many years