PROBLEM III Suppose that there is a monopoly cable TV compan

PROBLEM III. Suppose that there is a monopoly cable TV company who offers two types of program: P1 and P2. There are two consumers (i = 1,2) in this market, where consumer 1 has WTP of $12 for P1 and $10 for P2, while consumer 2 has WTP of Sb for P1 and $14 for P2. The company must charge the same prices to both consumers, either for the two program types separately or for the bundle of both program types. Assume that there is no marginal cost of broadcasting TV program for the company. Q& When b = 1, (a) setting prices for the two program types separately is superior and (b) setting a price for the bundle of both program types is superior and (c) setting a price for the bundle of both program types is superior and (d) setting prices for the two program types separately is superior and (e) setting prices for the two program types separately is superior and only consumer 2 will purchase P1 under the optimal pricing the bundle price will be $22 under the optimal pricing the bundle price will be $19 under the optimal pricing only consumer 1 will purchase P1 under the optimal pricing only consumer 2 will purchase P2 under the optimal pricing Q9. When b = 5, (a) setting prices for the two program types separately is superior and (b) setting a price for the bundle of both program types is superior and (c) setting a price for the bundle of both program types is superior and (d) setting prices for the two program types separately is superior and (e) setting prices for the two program types separately is superior and only consumer 2 will purchase P1 under the optimal pricing the bundle price will be $22 under the optimal pricing the bundle price will be S19 under the optimal pricing only consumer 1 will purchase P1 under the optimal pricing only consumer 2 will purchase P2 under the optimal pricing

Solution

8. Given Consumer 1 is willing to pay $12 for program P1 and $10 for program P2 and Consumer 2 is willing to pay $b for program P1 and $14 for program P2. For optimal pricing the cable company must charge same prices to both consumers for Program P1 and P2 or bundle.

Thus if b = 1 then under optimal pricing, the company must fix bundle price for two programs P1 and P2 to $12 +$10 = $22

Therefore the correct answer will be (b)

9. If b = 5, then under optimal pricing the company must fix bundle price equal to $b + $14 = $5 +$14 = $19 therefore, correct answer will be (c)

10. If b = 10, then under optimal pricing the cable company must fix price of Program P1 = $10 and program P2 = $14 separately for both customers. Thus from the given condition, only customer 2 will purchase Program P1 under optimal pricing. Therefore, the correct answer is (a)