Let's assume that there are two potential customers for cable service in my town of Ulysses (this is an exaggeration, but it is a small town) - let's call them customer A and B. Customer A values the first cable box at $80, and the second at $60. Customer B values the first cable box at $60 and the second at $20. The cost to the cable firm of providing cable boxes is zero.

2. Now let's assume the cable company does not know exactly which customer has the different values for cable, but that it does know what the distribution of values are. The cable company wants the customers to reveal their values through different pricing plans. The cable company can potentially offer two different packages. The first package would be for the price of a single cable box. The second plan would be a single price for two cable boxes. NOTE: If it is profit maximizing to only offer one of the two plans then that is what it will do. What plans should the company offer, and how should it price the plans, given that the customers will select the plan that maximizes their consumer surplus? To earn partial credit, you can demonstrate the various plans that you try. (5)