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XYZ Cable Co. is trying to decide whether to bundle 2 channels: its “Sports” channel and...

XYZ Cable Co. is trying to decide whether to bundle 2 channels: its “Sports” channel and its “History” channel. It has identified 2 type of customers who regularly subscribe to these channels, “Sports Nuts” and “History Buffs”.

Below is the willingness to pay of Sports Nuts and History Buffs for each of the channels.

Willingness to Pay
Number of Customers Sports Channel History Channel
Sports Nuts 10,000 $20 $4
History Buffs 2,000 $3 $10

Assuming that the incremental cost of serving 1 more customer for both channels is zero:

1. If you decide to have a separate price for each channel (2 prices), what is the optimal price and what are your profits? What is the consumer surplus? Show your calculations.

2. If you decide to bundle the 2 channels, what is the optimal price and what are your profits? What is the consumer surplus? Show your calculations.

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Expert Solution

ekkarill92 answered 2 years ago
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