Question: 1. Explain how and under what circumstances tying can increase profits by acting as a metering device. Give a real-world example. Demonstrate your answer by

1. Explain how and under what circumstances tying can increase profits by acting as a metering device. Give a real-world example. Demonstrate your answer by solving the tying example done in class for the parameter values indicated below. Tying Example qB1 = a1 - pB, qB2 = a2 - pB MCA = cA, MCB = cB, N buyers of each type Parameter values: a1 = 13, a2 = 17, cB = 1, cA = 5

2. (10 marks). Solve the menu of two-part tariff example done in class for the parameter values and level of pL indicated below. Your solution should (i) derive values for pH, FL, FH and profits and (ii) show how buyers select from the menu. Menu of Two-part Tariffs Example p1 = a1 - q1, p2 = a2 - q2, MC = c, N buyers of each type Parameter and pL values: a1 = 40, a2 = 50, c = 0. pL = 30

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