4. A firm produces two products, the demands for which are independent. Both products have zero...

 

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4. A firm produces two products, the demands for which are independent. Both products have zero marginal cost. The firm faces four consumers with the following reservation prices: Consumer 1 2 3 TTE 80 Good 1 Good 2 25 100 40 80 40 4 100 25 a. Show the optimal price and quantity of Good 1 (unbundled) on a graph with the firm's demand and marginal revenue. b. Show the optimal price and quantity of the bundle (Goods 1 and 2) on a graph with the firm's demand and marginal revenue (for the bundle). c. Should the firm bundle these goods? Compare the firm's profits under both scenarios. d. Which approach do consumers prefer? Compare consumer surplus under both scenarios. e. Now suppose that MC = 30. Reassess the optimal prices, quantities, and profit with and without bundling. 4. A firm produces two products, the demands for which are independent. Both products have zero marginal cost. The firm faces four consumers with the following reservation prices: Consumer 1 2 3 TTE 80 Good 1 Good 2 25 100 40 80 40 4 100 25 a. Show the optimal price and quantity of Good 1 (unbundled) on a graph with the firm's demand and marginal revenue. b. Show the optimal price and quantity of the bundle (Goods 1 and 2) on a graph with the firm's demand and marginal revenue (for the bundle). c. Should the firm bundle these goods? Compare the firm's profits under both scenarios. d. Which approach do consumers prefer? Compare consumer surplus under both scenarios. e. Now suppose that MC = 30. Reassess the optimal prices, quantities, and profit with and without bundling.