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The table below shows four consumers willingnesses to pay for phone service subscription and broadband internet service subscription. Each consumer demands at most one subscription for phone service and at most one subscription for internet service (the willingness to pay for any further units is zero). There are no complemen- tarities in consumption, le, a consumer’s willingness to pay for both services is just the sum of his willingness to pay for phone service and his willingness to pay for in- ternet service. Both services are supplied by the same monopolist. Assume that the monopolist’s costs are zero.
Consumer WTP (Phone) WTP(Internet)
A $15 $30
B $25 $25
C $30 $25
D $35 $20
- Suppose the monopolist sells phone service and internet service separately. It must charge a constant per-unit price in each market (ie.. it cannot discriminate among consumers). What will be the equilibrium prices and quantities of phone service and internet service? What will be the monopolist’s profits?
2.Now suppose the monopolist can sell bundles consisting of both phone and internet service. It must still charge a constant price per bundle (i.e., cannot discriminate among consumers). What will be the equilibrium price and quan tity of bundles sold? What will be the monopolist’s profits? Will the monopolist find it profitable to offer the bundles instead of phone service and internet ser vice separately?
3)Now assume instead that the phone service monopolist is selling monthly talk time to consumers. The monopolist’s costs are zero. For simplicity assume there are only two consumers (you can think of these as two groups). Consumer 1 is willing to pay $7 for the first block of 60 minutes. $5 for the second block of 60 minutes. and S3 for the third block of 60 minutes Consumer 2 is willing to pay $5 for the first 60 minutes. $3 for the second, and $1 for the third. Neither consumer demands more than three blocks (180 minutes)
A)Suppose the monopolist can tell the consumers apart, can prevent arbitrage, and can offer each consumer a fixed package for a foed tee. What are the packages that the monopolist will offer to the two consumers? State quantities (numbers of talk time blocks) and prices. What will be the monopolist’s profit?
B)Continue to assume that the monopolist can tell the consumers apart and can prevent arbitrage, but now suppose that it can no longer offer fixed packages or charge access fees. Instead, the monopolist must charge a constant price per talk time block for each consumer (however, different prices may be charged to the two consumers). What prices will the monopolist charge? What will be the monopolist’s profit?
Sample Solution
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