___.___. .._.__ _._ _-_- ___._ _[._._..__ .. I"_""" Question 2 A software companyr sells two applications. noted A and Br that are totally unrelated to one another. The marginal cost ofproduction for each application is constant and is equal to 4d. The company faces four categories of potential buyers which are characterized by a pair of reservation prices as depicted in the following table; it is assumed that each category counts the same mass ofconsunlersl which is set to l. Application A Application 3 C at ego ry C at ego r]: C at ego r}; C at ego ry Let CB denote the cost ofthe bundle. CB 8i] Let Ra and Rb denote reservation values for application A and B respectively and RB denote the reservation value for the bundle. Let CS denote consumer surplus and 3'12 denote the firm's profit. Show all computations a. What optimal price should the company set and what profits would it make if it decides to offer {i} only individual items (no bundling} {ii} only the bundle {pure bundling] {iii} bundle and option to buy individual items [mixed bundling]. Be sure to show which categories of consumers will buyr which application? (Hint: for the seller to do better with mixed bundling than with pure bundling the bundle price will need to be different in the 2 cases] b. Graph the reservation values and pro fitmaximizing prices Pa and Pb. Show the mixed bundling prices and shade in the area that indicates reservation values of consumers who will purchase the bundle when the rm practices mixed bundling based with marginal cost of 9634']