Y7

Suppose that AT&T has a local monopoly for cable TV and high-speed internet and that the marginal cost of producing both goods is zero. There are three consumers with different demands for the two goods. Consumers will purchase a good if their willingness to pay for the good is greater than the price. WTP for WTP for Consumer cable TV internet 2 5 2 3 6 2 1. Suppose that the goods are offered separately. What is the monopoly uniform price for each good? What are profits? 2. Suppose that AT&T decides to employ a pure bundling strategy and that WTP is additive. What is the optimal bundle price? Now suppose that AT&T decides to employ a mixed bundling strategy, offering TV and internet a la carte at the prices you found in 2.1 and as a bundle at the price you found in 2.2. 3. Which consumers will buy cable TV alone, internet alone, and the bundle? What are AT&T's profits under this mixed bundling strategy? 4. Is there a mixed bundling strategy that can increase AT&T's profits above those in 2.3? If so, what prices are charged for cable TV alone, internet alone, and the bundle? 5. Of the three pricing schemes in 2.1, 2.2, and 2.4, which is the most profitable?Suppose that AT&T has a local monopoly for cable TV and high-speed internet and that the marginal cost of producing both goods is zero. There are three consumers with different demands for the two goods. Consumers will purchase a good if their willingness to pay for the good is greater than the price. WTP for WTP for Consumer cable TV internet 2 5 2 3 6 2 1. Suppose that the goods are offered separately. What is the monopoly uniform price for each good? What are profits? 2. Suppose that AT&T decides to employ a pure bundling strategy and that WTP is additive. What is the optimal bundle price? Now suppose that AT&T decides to employ a mixed bundling strategy, offering TV and internet a la carte at the prices you found in 2.1 and as a bundle at the price you found in 2.2. 3. Which consumers will buy cable TV alone, internet alone, and the bundle? What are AT&T's profits under this mixed bundling strategy? 4. Is there a mixed bundling strategy that can increase AT&T's profits above those in 2.3? If so, what prices are charged for cable TV alone, internet alone, and the bundle? 5. Of the three pricing schemes in 2.1, 2.2, and 2.4, which is the most profitable