# You are the manager of a ﬁrm that produces two producE I and ‘I". Your objective is to maximize profits. The marginal cost of producing each product is constant and

You are the manager of a ﬁrm that produces two producE I and ‘I". Your objective is to maximize profits. The

marginal cost of producing each product is constant and equal to $413 and there is no ﬁxed cost {i.e., TCx = dﬂﬂx

and T6: = 4110-: and MC = AFC = ATE for each product]. Vou know that different types of customers value your two products differently, but you are unable to identify these customers individually at the time of the sale. In

particular, you know there are four types of customers [with 100 customer: of each type} with the following valuations [willingness to pay] for the two products as follows: [e] are the optimal prices for each product if you sell these product. separately? is your ﬁrm’s total

profit? Show all your calculations. (4 points} [h] [i] is the optimal price if you sell the two product. as a pure bundle containing one unit of product I and

one unit of product Y? is your ﬁrm’s total proﬁt? Show all your calculations. {5 points} [ii] Now suppose that you 1LII-rant to use mixed bundﬁng strategy i.e., sell the two producE as a bundle and also sell

the two products separately. should you charge [1} for the bundle {ii} for product at and [iii] for product ‘I",

such that your overall proﬁts from mixed bundﬁng strategy is maximized? is your firm’s total proﬁt? Show all

your calculations. Are you extracting all consumer surplus with this strategy? Explain brieﬁy. [9 poims]

## Leave a Reply

Want to join the discussion?Feel free to contribute!