Chapter 14. Question 15

14.1 Screen 1 of 5

Question 15
true

Question

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 $WNcOfjB4sOM= for the sale of game X and sell only to U3hjuYrRInYQblAK.
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” (please link to section in the ebook).
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” (please link to section in the ebook).

14.2 Screen 2 of 5

Question

В. If the firm wishes to sell each product separately, it will earn at most $05dveybDphA= for the sale of game Y and sell only to rbqMvVzxFmYW5B5UEaBUEQ==.
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” (please link to section in the ebook).
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” (please link to section in the ebook).

14.3 Screen 3 of 5

Question

С. If the firm wishes to sell each product separately, the most profit it will earn is
$DMbfwWV3u74=.
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” (please link to section in the ebook).
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” (please link to section in the ebook).

14.4 Screen 4 of 5

Question

D. If the firm bundles the two games, it can sell the bundle for $8P3aa4uLOo8=.
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” (please link to section in the ebook).
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” (please link to section in the ebook).

14.5 Screen 5 of 5

Question

E. By bundling, the firm would earn $7Fm68yq7gsI=, or $fwIPnBkWdu4= 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” (please link to section in the ebook).
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” (please link to section in the ebook).