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]

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