a) No threat of entry (10 marks) If a monopolist does not face a threat of entry, then explain under what circumstances (i) bundling is more profitable than selling goods individually (ii) mixed bundling is more profitable than bundling. Illustrate your answer using the example below by finding the profit maximizing prices and profits for (iii) selling separately (iv) bundling and (v) mixed bundling. N buyers of each type MC = 2.50 CDs Buyer w Good A 8 Good B 6 Bundle 14 Buyer x 5 5 10 Buyer y Buyer z 9 2 2 9 11 11 b) Threat of entry (10 marks) If firm 1 is a monopolist in market A and faces a threat of entry in market B then explain why bundling can credibly commit firm 1 to set a lower effective price for good B and can thereby deter entry of firm 2 in market B. Illustrate your answer by using the example below to show that (i) entry deterrence occurs if and only if the firm bundles (ii) entry deterrence and bundling is more profitable than not bundling and allowing entry even though bundling reduces monopoly profits. N buyers of each type, VA = 9, MCA = 5, MCB1 = 3, MCB2 = 1, FCB = F < 2N Good A Good B Buyer w VA = 9 Buyer x VA = 9 Buyer y VA = 9 Buyer z VA = 9 7 5 4 10 Bundle 16 14 13 19