How much would Opstra charge for home telephone and home internet if it sells these services separately and would like all possible customers to purchase both services? Assuming Opstra signs up these 4 customers, what is their total producer surplus in this case?

            

What price should Opstra charge if they only offer home phone and internet services bundled together and they want all of these customers to sign up with them? Assuming again that Opstra signs up these 4 customers, what is their total producer surplus in this case? 

 

Suppose that Vivian gets a mobile phone and finds that a home phone service is not as important to her as it used to be. Her new willingness to pay for home telephone is now $20 per month. Explain whether the bundling strategy will benefit Opstra. What could Opstra do to maximise producer surplus?                

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Telephone companies offer a range of services and often bundle products for their customer's convenience. Consider the following example of a company called Optstra. They offer home phone and home internet services to their customers. They have four typical customers whose willingness to pay for each service is given in the table below. Vernon Maureen Vivian Alex Willingness to pay (per month) Home Telephone $20 $30 $50 $40 Home Internet $60 $50 $20 $40 Opstra has a constant monthly marginal cost of $5 for home telephone, while home internet has a constant monthly marginal cost of $10. These customers are considering joining Opstra for both home telephone and internet services. Telephone companies offer a range of services and often bundle products for their customer's convenience. Consider the following example of a company called Optstra. They offer home phone and home internet services to their customers. They have four typical customers whose willingness to pay for each service is given in the table below. Vernon Maureen Vivian Alex Willingness to pay (per month) Home Telephone $20 $30 $50 $40 Home Internet $60 $50 $20 $40 Opstra has a constant monthly marginal cost of $5 for home telephone, while home internet has a constant monthly marginal cost of $10. These customers are considering joining Opstra for both home telephone and internet services.

Answer rating: 100% (QA)

Lets start by analyzing the pricing and bundling strategies for Opstra and then calculate the total producer surplus in each case 1 Pricing Services Separately a Home Telephone Vernons willingness to ... View the full answer