Suppose that there is a monopolist M

producing two products, A and B, at

a marginal cost of zero. Suppose that

there are 25 consumers in the market

who are willing to pay $4 for A and

$0 for B, 25 consumers who are willing

to pay $0 for A and $4 for B, and 50

consumers who are willing to pay $x for

each. For each of x = 1,2,3, answer the

following questions.

a) Absent bundling, what are the

profitmaximizing prices pa, pb for

products A and B, respectively?

What would be the producer and

total surpluses?

(b) With pure bundling, what is the

profitmaximizing price pab for

the bundle of A and B? What

would be the producer and total

surpluses?

(c) With mixed bundling, what are

the profitmaximizing prices

pa, pb , pab ? What would be the

producer and total surpluses?

(d) (only answer this once) This toy ex-

ample does not cover all possi-

ble scenarios one might encounter

that involve bundling. What is gen-

erally the relevance of bundling

for mergers?