Problem Set midterm exams Econ 550

User Generated

Tvgyre1990

Economics

Description

1.Suppose Time Warner could sell Showtime for $9, and History channel for $8, while making Showtime-History bundle available for $13. Should it use mixed bundling. i.e., sells products both separately and as a bundle?

Your answer must include the profit with mixed bundling.

2. Suppose your company runs a shuttle business of a hotel to and from the local airport. The costs for different customer loads are:

1 customer: $30

2 customers: $32

3 customers: $35

4 customers: $38

5 customers: $42

6 customers: $48

7 customers: $57

8 customers: $68.

What are your marginal costs for each customer load level?

Q

TC

MC

Total Rev

Profit

1

30

10

-20

2

32

Blank 1

20

-12

3

35

Blank 2

30

-5

4

38

Blank 3

40

2

5

42

Blank 4

50

8

6

48

Blank 5

60

12

7

57

Blank 6

70

13

8

68

Blank 7

80

12

30 points

1 customer: $30

2 customers: $32

3 customers: $35

4 customers: $38

5 customers: $42

6 customers: $48

7 customers: $57

8 customers: $68.

If you are compensated $10 per ride, what customer load would you choose?

Marginal Cost is the change in costs due to the additional customer. Since marginal revenue is the price of $10, you will serve customers up to the point where MR ≥ MC or you will serve 7 customers.



Marginal Cost is the change in costs due to the additional customer. Since marginal revenue is the price of $10, you will serve customers up to the point where MC < MR or you will serve 10 customers.



Marginal Cost is the change in costs due to the additional customer. Since marginal revenue is the price of $10, you will serve customers up to the point where MC< MR or you will serve 9 customers.



Marginal Cost is the change in costs due to the additional customer. Since marginal revenue is the price of $10, you will serve customers up to the point where MC = MR or you will serve 7 customers.



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Explanation & Answer

Attached.

Running head: BUNDLING ECONOMICS ASSIGNMENT

BUNDLING ECONOMICS ASSIGNMENT
Name:
Institution affiliation:
Date:

1

BUNDLING ECONOMICS ASSIGNMENT

2

QUESTION 1
First, bundling entails a type of price discrimination where many products are sold
together as a single bundle. The price of the bundle will be less than the sum of prices of
those individual...


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