TranscribedText: 4. Suppose there is a sandwich shop (incumbent) selling lemonade and sandwiches separately. The marginal cost of lemonade is $2 and the marginal cost of sandwiches is $3. There is a new potential entrant in the lemonade market (the entrant does not sell sandwiches) with a marginal cost of $1. Assume the lemonade is identical from either place. The table below depicts the valuation (willingness to pay) for lemonade and sandwiches of different consumers. Lemonade Sandw10h "n m- 3. Suppose the entrant sells lemonade for $2 while the incumbent sells lemonade for $3. How many consumers will buy lemonade and who will they buy it from? ScreenshotAlt + A} b. What would happen if the incumbent stops selling lemonade and sandwiches separately, but bundles them and sells the bundle for $6.50. Which consumers will buy lemonade for $2 and which will buy the bundle for $6.50? (Hint: start by calculating the surplus each consumer receives from the two options)

4. Suppose there is a sandwich shop (incumbent) selling lemonade and sandwiches separately. The marginal cost of lemonade is $2 and the marginal cost of sandwiches is $3. There is a new potential entrant in the lemonade market (the entrant does not sell sandwiches) with a marginal cost of $1. Assume the lemonade is identical from either place. The table below depicts the valuation (willingness to pay) for lemonade and sandwiches of different consumers. Consumer Value of Lemonade Value of Sandwich 1 1.0 2.0 2 1.5 5.5 3 3.4 4.6 4 4.0 4.0 5 4.5 7.0 6 5.0 9.0 7 3.0 4.0 a. Suppose the entrant sells lemonade for $2 while the incumbent sells lemonade for $3. How many consumers will buy lemonade and who will they buy it from? Screenshot(Alt + A) b. What would happen if the incumbent stops selling lemonade and sandwiches separately, but bundles them and sells the bundle for $6.50. Which consumers will buy lemonade for $2 and which will buy the bundle for $6.50? (Hint: start by calculating the surplus each consumer receives from the two options)