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. How much additional profit can the telecommunications company earn by switching to the use of a tying strategy to price high speed internet access and cable television rather than pricing these goods separately?

Question

Scenario 17-2
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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. How much additional profit can the telecommunications company earn by switching to the use of a tying strategy to price high speed internet access and cable television rather than pricing these goods separately?

Quizplus · Accepted Answer

The Answer of Scenario 17-2
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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. How much additional profit can the telecommunications company earn by switching to the use of a tying strategy to price high speed internet access and cable television rather than pricing these goods separately?

Scenario 17-2 ​

Scenario 17-2