{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

ProblemSet3SP10 - Problem Set 3 Bundling Game Theory and...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Problem Set 3: Bundling, Game Theory and the Bertrand Model Question 1: In the following problems, assume that the monopolist can prevent arbitrage and knows the distribution of consumer types. Assume that each type forms an equal proportion of the population. This way, you may assume that there is one consumer of each type. Assume cost is zero. Does the monopolist prefer to sell the items A and B separate or in a bundle? What is (are) the optimal price(s)? (i) Type 1 is willing to pay $5000 for Item A and $2000 for item B. Type 2 is willing to pay $6000 for Item A and $1500 for Item B. (ii) Type 1 is willing to pay $5000 for Item A and $6000 for item B. Type 2 is willing to pay $6000 for Item A and $1500 for Item B. (iii) Type 1 is willing to pay $6000 for Item A and $2000 for item B. Type 2 is willing to pay $6000 for Item A and $1500 for Item B. (iv) Type 1 is willing to pay $5000 for Item A and $2000 for item B. Type 2 is willing to pay $9000 for Item A and $7000 for Item B. (v) Type 1 is willing to pay $5000 for Item A and $2000 for item B. Type 2 is willing to pay $2000 for Item A and $7000 for Item B. (vi) Type 1 is willing to pay $5000 for Item A, $3000 for item B, and $1000 for Item C. Type 2 is willing to pay $1000 for Item A, $3000 for Item B, and $5000 for Item C. Type 3 is willing to pay $4000 for Item A, $6000 for Item B, and $11000 for Item C. Question 2: Refer back to Figure 10.5 from the lecture notes. Assume now that the marginal cost of producing pie is 1 and the marginal cost of producing halibut is also 1. What is the optimal pricing scheme (individual, bundling or mixed bundling) and what is (are) the price(s)? Question 3: Consider a monopolist who sells lamps and chairs. There are four types of consumers. Type 1 is willing to pay $3 for a lamp and $3 for a chair. Type 2 is willing to pay $6 for a lamp and $3 for a chair. Type 3 is willing to pay $3 for a lamp and $6 for a chair. Type 4 is willing to pay $6 for a lamp and $6 for a chair. The monopolist produces at marginal equal to 1. He knows the distribution of consumers which is equal parts for each type (this means you can assume there is one of each) and can prevent arbitrage. What is the optimal pricing scheme? Question 4: Consider the following game: l m r U 5,3 0,4 3,5 M 4,0 5,5 4,0 D 1,5 0,4 1,1 (i) Write down the best response function for the row player and the column player.
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern