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Chapter 14

Question 15
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You must read each slide, and complete any questions on the slide, in sequence.

Suppose Caroline values video game X at $70 and video game Y at $30, whereas Jacqueline values video game X at $30 and video game Y at $60. The marginal cost to produce each game is $0. If a firm that produces both games decides to bundle X and Y, what price should it charge, and why is this bundling strategy more profitable than selling each game separately at a single price (assuming price discrimination is not possible)?

A. If the firm wishes to sell each product separately, it will earn at most $ for the sale of game X and sell only to .
Correct! If the firm wishes to sell each product separately, it will earn at most $70 for the sale of game X (by pricing game X at $70) and selling only to Caroline. For further review, see section “Competition and Pricing Strategies."
Incorrect! If the firm wishes to sell each product separately, it will earn at most $70 for the sale of game X (by pricing game X at $70) and selling only to Caroline. For further review, see section “Competition and Pricing Strategies."
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      В. If the firm wishes to sell each product separately, it will earn at most $ for the sale of game Y and sell only to .
      Correct! If the firm wishes to sell each product separately, it will earn at most $60 for the sale of game Y (by pricing game Y at $60) and selling only to Jaqueline. For further review, see section “Competition and Pricing Strategies."
      Incorrect! If the firm wishes to sell each product separately, it will earn at most $60 for the sale of game Y (by pricing game Y at $60) and selling only to Jaqueline. For further review, see section “Competition and Pricing Strategies."
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          С. If the firm wishes to sell each product separately, the most profit it will earn is
          $.
          Correct! If the firm wishes to sell each product separately, it will earn at most $70 for the sale of game X (to Caroline), while earning at most $60 for the sale of game Y (to Jacqueline). The total profit for the firm would be $70 + $60 = $130. For further review, see section “Competition and Pricing Strategies."
          Incorrect! If the firm wishes to sell each product separately, it will earn at most $70 for the sale of game X (to Caroline), while earning at most $60 for the sale of game Y (to Jacqueline). The total profit for the firm would be $70 + $60 = $130. For further review, see section “Competition and Pricing Strategies."
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              D. If the firm bundles the two games, it can sell the bundle for $.
              Correct! If the firm bundles the two games, it can sell the bundle for $90. This is the highest price at which both Caroline and Jacqueline would buy the bundle; Caroline would be willing to pay $70 + $30 = $100, but Jacqueline would be willing to pay only $30 + $60 = $90. For further review, see section “Competition and Pricing Strategies."
              Incorrect! If the firm bundles the two games, it can sell the bundle for $90. This is the highest price at which both Caroline and Jacqueline would buy the bundle; Caroline would be willing to pay $70 + $30 = $100, but Jacqueline would be willing to pay only $30 + $60 = $90. For further review, see section “Competition and Pricing Strategies."
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                  E. By bundling, the firm would earn $, or $ more than if they would sell each good individually.
                  Correct! The firm would earn $180 (found by: $90 × 2), or $50 (found by: $180 – $130) more than if selling each good individually. For further review, see section “Competition and Pricing Strategies."
                  Incorrect! The firm would earn $180 (found by: $90 × 2), or $50 (found by: $180 – $130) more than if selling each good individually.For further review, see section “Competition and Pricing Strategies."
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