XYZ Cable Co. is trying to decide whether to bundle 2 channels: its "Sports" channel and its "History" channel. It has identified 2 type of customers who regularly subscribe to these channels, "Sports Nuts" and "History Buffs".

Below is the willingness to pay of Sports Nuts and History Buffs for each of the channels.

Willingness to Pay

Number of Customers

Sports Channel

History Channel

Sports Nuts

10,000

$20

$4

History Buffs

2,000

$3

$10

Assuming that the incremental cost of serving 1 more customer for both channels is zero:

1.If you decide to have a separate price for each channel (2 prices), what is the optimal price and what are your profits? What is the consumer surplus? Show your calculations.

1.If you decide to bundle the 2 channels, what is the optimal price and what are your profits? What is the consumer surplus? Show your calculations.