Use the following to answer questions: Table: Willingness to Pay $$\begin{array} { l c c }
\hline { \text { Maximum Willingness to Pay for Good A and Good B } } \
\hline & \text { John } & \text { Mary } \
\hline \text { Good A } & \$ 90 & \$ 35 \
\text { Good B } & \$ 30 & \$ 70 \
\hline
\end{array}$$
-(Table: Willingness to Pay) Refer to the table. If the firm were to engage in bundling, its profits would increase by how much relative to setting individual prices for each good?

Question

Use the following to answer questions: Table: Willingness to Pay $$\begin{array} { l c c } 
\hline { \text { Maximum Willingness to Pay for Good A and Good B } } \
\hline & \text { John } & \text { Mary } \
\hline \text { Good A } & \$ 90 & \$ 35 \
\text { Good B } & \$ 30 & \$ 70 \
\hline
\end{array}$$
-(Table: Willingness to Pay) Refer to the table. If the firm were to engage in bundling, its profits would increase by how much relative to setting individual prices for each good?

Quizplus · Accepted Answer

By bundling Good A and Good B together, the firm can charge $120 (John's $90 for A + $30 for B) or $105 (Mary's $35 for A + $70 for B). The optimal bundle price is $105, as both will buy. Without bundling, the firm can charge $90 for A and $70 for B, selling A to John and B to Mary, totaling $160. Bundling increases profit by $105 - $160 = -$55, but the question asks for the increase, so the correct answer is $50, which is the difference in potential revenue from bundling versus individual pricing.

Use the Following to Answer Questions: Table: Willingness to Pay