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A monopolist produces two goods, good 1 and 2. consumer in this market have reservation price r 1 and r 2 . Each consumer, then,

  1. A monopolist produces two goods, good 1 and 2. consumer in this market have reservation price r1and r2. Each consumer, then, can be represented by a point on the following graph. For example, consumer A would reservation price ra1and r22for the two goods. This is depicted below with some points representing consumers B - F.

  1. Suppose that the monopolist sells the two goods separately (i.e., follows the separate pricing strategy) at price p1 and p2 such that (ra1c1) and (rc2b2). Illustrate these two prices on the reservation price graph (i.e., illustrate all the prices for good 1 that equal p1 and all the reservation prices for good 2 that equal p2). Illustrate which consumers buy which goods at these two prices.
  2. Suppose that the monopolist sells the goods only as a bundle (or follows the pure bundling strategy) at price PB. Illustrate this price on the reservation price graph. (i.e., Illustrate all reservation prices for which r1+r2= PB). Illustrate which consumers buy which goods at this price.
  3. Suppose the monopolist sells the goods under a mixed pricing strategy, so that products are available separately at prices p1 and p2 as well as in a bundle. Illustrate the three prices on a reservation price graph. Illustrate which consumers buy which goods at these prices.
  4. Using your graphs, illustrate why mixed bundling may be a desirable policy.

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