(Table: Hotel Stay and Airfare I) The table shows the consumer's willingness to pay for a hotel stay and airfare.
Assume that marginal cost is zero for both goods.
a. If the hotel and airfare are priced separately, what prices maximize producer surplus? What is the level of producer surplus?
b. If the hotel and airfare are bundled, what is the optimal bundle price? What is the level of producer surplus?
c. Suppose the hotel and airfare are mixed-bundled such that the bundle price is $410 and the hotel and airfare are priced separately, each at $180. Why is this mixed-bundling strategy NOT incentive-compatible?

Question

(Table: Hotel Stay and Airfare I) The table shows the consumer's willingness to pay for a hotel stay and airfare.  
Assume that marginal cost is zero for both goods. 
a. If the hotel and airfare are priced separately, what prices maximize producer surplus? What is the level of producer surplus?
b. If the hotel and airfare are bundled, what is the optimal bundle price? What is the level of producer surplus?
c. Suppose the hotel and airfare are mixed-bundled such that the bundle price is $410 and the hotel and airfare are priced separately, each at $180. Why is this mixed-bundling strategy NOT incentive-compatible?

Quizplus · Accepted Answer

The Answer of (Table: Hotel Stay and Airfare I) The table shows the consumer's willingness to pay for a hotel stay and airfare.  
Assume that marginal cost is zero for both goods. 
a. If the hotel and airfare are priced separately, what prices maximize producer surplus? What is the level of producer surplus?
b. If the hotel and airfare are bundled, what is the optimal bundle price? What is the level of producer surplus?
c. Suppose the hotel and airfare are mixed-bundled such that the bundle price is $410 and the hotel and airfare are priced separately, each at $180. Why is this mixed-bundling strategy NOT incentive-compatible?

(Table: Hotel Stay and Airfare I) the Table Shows the Consumer's