Scenario 17-2

Assume that a local telecommunications company sells high speed internet access and cable television. The company's only two customers are Taylor and Tim. Taylor is willing to pay $50 per month for high speed internet access and $50 per month for cable television. Tim is willing to pay only $20 per month for high speed internet access, but is willing to pay $70 per month for cable television. Assume that the telecommunications company can provide each of these products at zero marginal cost.
-Refer to Scenario 17-2. If the telecommunications provider is able to use tying to price high speed internet access and cable television, what is the profit-maximizing price to charge for the "tied" good?

Question

Scenario 17-2
​
Assume that a local telecommunications company sells high speed internet access and cable television. The company's only two customers are Taylor and Tim. Taylor is willing to pay $50 per month for high speed internet access and $50 per month for cable television. Tim is willing to pay only $20 per month for high speed internet access, but is willing to pay $70 per month for cable television. Assume that the telecommunications company can provide each of these products at zero marginal cost.
-Refer to Scenario 17-2. If the telecommunications provider is able to use tying to price high speed internet access and cable television, what is the profit-maximizing price to charge for the "tied" good?

Quizplus · Accepted Answer

The Answer of Scenario 17-2
​
Assume that a local telecommunications company sells high speed internet access and cable television. The company's only two customers are Taylor and Tim. Taylor is willing to pay $50 per month for high speed internet access and $50 per month for cable television. Tim is willing to pay only $20 per month for high speed internet access, but is willing to pay $70 per month for cable television. Assume that the telecommunications company can provide each of these products at zero marginal cost.
-Refer to Scenario 17-2. If the telecommunications provider is able to use tying to price high speed internet access and cable television, what is the profit-maximizing price to charge for the "tied" good?

Scenario 17-2 ​

Scenario 17-2