Nathan Levi Michael News $40 $20 $75 Sports $25 $10 $10 Food $10 $50 $20 Table i
ID: 2495616 • Letter: N
Question
Nathan
Levi
Michael
News
$40
$20
$75
Sports
$25
$10
$10
Food
$10
$50
$20
Table is of the willingness to pay for TV Channel
Refer to the table above. Assume zero costs.
a. What price would the seller choose for each TV channel if she priced the
channels individually? (1 pt.)
b. What price would the seller choose if she bundled all three TV channels in
order to maximize profits? (1 pt.)
c. How much more profit does the seller make if she bundles than if she sells
the TV channels individually? (1 pt.)
Nathan
Levi
Michael
News
$40
$20
$75
Sports
$25
$10
$10
Food
$10
$50
$20
Explanation / Answer
a. Since there is no costs , profits is equal to the total revenue = P*Q
where Q for each given price will be those person whose willingness to pay is greater then price.
So Total Revenue for News at $40= 2*40 = $80
Total Revenue for News at $20 =3*20 = $60
Total Revenue for News at $75= $75
So Maximum revenue is For P = $40 for Food , Hence P of News= 40
Similarly
Total Revenue for sports at P= $25 = $25
Total Revenue for sports at P=$10 = 3*30 = $30
So Maximum revenue is For P = $10 for sports, Hence P of sports= $ 10
Similarly
Total Revenue for Food at p=$10 = 3*10 = $30
Total Revenue for Food at p= $50 = $50
Total Revenue for Food at p= $20 = 2*20 =$40
So Maximum revenue is For P = $50 for Food , Hence P of food= 50
b. Price would the seller choose if she bundled all three TV channels in
order to maximize profits would be where TR is maximized.
TR for three TV channels bundle at P= 75 = 225
TR for three TV channels bundle at P= 80 = $160
TR for three TV channels bundle at P= 105 = $105
So TR for three TV channels is maximized at at P= 75
So P =75
c. TR for Bundle - Sum of TR for 3 channels Individually
= 225 - (80+30+50) = 225 - 160
= $65
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