A movie rental site offers two classic films, Casablanca and Son of Godzilla. The firm estimates that demand falls into two segments, A and B, both equal size of 1 million. Each group has willingness to pay for each film as shown in the table. Group A Group B Casablanca Godzilla $8 $7 $2.50 $3 If the films are sold separately, what price is charged and how many units are sold? Assuming zero marginal cost, what are firm profits under separate pricing? If the films are offered as a bundle what price is charged and how many bundles are sold? Assuming zero marginal cost, what are firm profits? Now assume that the cost per download for the firm is $2.75. Can the firm improve profits with mixed rather than pure bundling?

Use the worksheets to help you solve the problem. Group A Group B Casablanca Godzilla $8 $7 $2.50 $3 Pb Pc Pg Qb Qc Qg TR TC Profit 10.50 7 2.5 P Casablanca Q Casablanca TR TC Profit 8 1 8 0 8 7 2 14 0 14 P Godzilla Q Godzilla TR TC Profit P Bundle Q Bundle TR TC Profit 10.50 1 10.50 0 10.50 Cost = 0 Homework Problem Use the worksheets to help you solve the problem. Group A Group B Casablanca Godzilla $8 $7 $2.50 $3 Pb Pc Pg Qb Qc Qg TR TC Profit 10.50 7 2.5 P Casablanca Q Casablanca TR TC Profit 8 1 8 2.75 5.25 7 2 14 2.75 11.25 P Godzilla Q Godzilla TR TC Profit P Bundle Q Bundle TR TC Profit 10.50 1 10.50 5.5 5.00 Cost = $2.75 each

A movie rental site offers two classic films, Casablanca and Son of Godzilla. The firm estimates that demand falls into two segments, A and B, both equal size of 1 million. Each group has willingness to pay for each film as shown in the table. Casablanca Godzilla $8 $2.50 Group A Group B $7 $3 If the films are sold separately, what price is charged and how many units are sold? Assuming zero marginal cost, what are firm profits under separate pricing? If the films are offered as a bundle what price is charged and how many bundles are sold? Assuming zero marginal cost, what are firm profits? Now assume that the cost per download for the firm is $2.75. Can the firm improve profits with mixed rather than pure bundling? Casablanca Godzilla Homework Problem Use the worksheets to help you solve the problem. S8 $2.50 Group A Group B $7 $3 Cost = 0 P Casablanca Casablanca TR TC Profit P Godzilla Q Godzilla TR TC Profit 1 0 8 7 2 14 14 P Bundle Q Bundle TR TC Profit 10.50 1 10.50 0 10.50 Pc Pg Qb Qc Qe TR TC Profit 10.50 7 2.5 Casablanca Godzilla Homework Problem Use the worksheets to help you solve the problem. S8 $2.50 Group A Group B $7 $3 Cost = $2.75 each P Casablanca Q Casablanca TR TC Profit P Godzilla Q Godzilla TR TC Profit 1 8 2.75 5.25 7 14 2.75 11.25 P Bundle Q Bundle TR TC Profit 10.50 1 10.50 5.5 5.00 Pb Pc Pg Qb Qc Qg TR TC Profit 10.50 7 2.5 A movie rental site offers two classic films, Casablanca and Son of Godzilla. The firm estimates that demand falls into two segments, A and B, both equal size of 1 million. Each group has willingness to pay for each film as shown in the table. Casablanca Godzilla $8 $2.50 Group A Group B $7 $3 If the films are sold separately, what price is charged and how many units are sold? Assuming zero marginal cost, what are firm profits under separate pricing? If the films are offered as a bundle what price is charged and how many bundles are sold? Assuming zero marginal cost, what are firm profits? Now assume that the cost per download for the firm is $2.75. Can the firm improve profits with mixed rather than pure bundling? Casablanca Godzilla Homework Problem Use the worksheets to help you solve the problem. S8 $2.50 Group A Group B $7 $3 Cost = 0 P Casablanca Casablanca TR TC Profit P Godzilla Q Godzilla TR TC Profit 1 0 8 7 2 14 14 P Bundle Q Bundle TR TC Profit 10.50 1 10.50 0 10.50 Pc Pg Qb Qc Qe TR TC Profit 10.50 7 2.5 Casablanca Godzilla Homework Problem Use the worksheets to help you solve the problem. S8 $2.50 Group A Group B $7 $3 Cost = $2.75 each P Casablanca Q Casablanca TR TC Profit P Godzilla Q Godzilla TR TC Profit 1 8 2.75 5.25 7 14 2.75 11.25 P Bundle Q Bundle TR TC Profit 10.50 1 10.50 5.5 5.00 Pb Pc Pg Qb Qc Qg TR TC Profit 10.50 7 2.5