3. Three consumers who want to buy a new car have the following valuations for dealer options:

	Air Conditioner	Power Brakes
Consumer 1	$175	$250
Consumer 2	$300	$400
Consumer 3	$400	$275

A) Assume that thedealer can charge one price for Air conditioners and one price for Power Brakes. What prices will the dealer charge for each item separately to maximize its total revenue from these three consumers, and what will be its total revenue? The goods are sold individually and are not bundled together, and any of the consumers may purchase either one or both goods separately. Please explain.

B) Suppose that the firm bundles Air Conditioners and Power Brakes together and sells them as a bundle and does not sell them separately any longer. The consumers can no longer buy the goods separately, they will either have to buy a bundle containing both goods or buy nothing. No consumer will pay more for a bundle than the sum of the prices they are willing to pay for the goods separately, i.e., Consumer 1 will not pay more for a bundle than $425, Consumer 2 will not pay more for a bundle than $700, and Consumer 3 will not pay more for a bundle than $675.What bundle price will maximize the dealer's revenue? Please explain.

4. Heathrow Airport Holdings isa private company that operates Heathrow Airport in London.Supposethecompany recentlycommissionedyourconsulting teamtocreate areporton trafficcongestion atHeathrow. YourreportindicatesthatHeathrowismore likely toexperience significant congestion (high demand)between July andSeptember than atother timesoftheyear.Based on yourestimates,

Demand curve during high demand isQ_H =600-0.25P,

whereQ_H isquantity demandedfor runwaytime slots betweenJuly and September.

Demand curve during low demand (the remainingnine months ofthe year) is Q_L = 220 -0.lP_L,

where Q_L is quantity demanded for runway timeslots during the remaining nine months.

Theadditional cost (marginal cost) Heathrow Airport Holdings incurs each time oneof the 80different airlines utilizes the runway is1,100 provided 80or fewer airplanes use the runway on agiven day.

When more than 80airplanes use Heathrow'srunways, theadditional costincurredby thecompany is6billion(thecost of building an additional runway and terminal). As a result, adding an additional runway is not an option for Heathrow, and its capacity is fixed at 80 airplanes per day.

Heathrow Airport Holdings currently charges airlines a uniform fee (during both the high demand and low demand periods)of 1,712.50 each time therunway is utilized.

MC P4 PH=2400-4QH P3 P2 MRH= 2400 - 8QH MC1 = $1,100 PL = 2200 - 10QL MRL= 2200 - 20QL * Quantity Q1 Q2 Q3=80