PROBLEM SET QUESTIONS

1.  Suppose the number of firms you compete with has recently increased. You estimated that as a result of the increased competition, the demand elasticity has increased from –2 to –3, i.e., you face more elastic demand. You are currently charging $10 for your product. If demand elasticity is -3, you should charge [x]. 

2-4. (See File Attached)

5.  Explain the difference in the profit realized under the two situations (the price in each market or in the two markets combined.)

6-7 (See File Attached)

8.  Suppose Time Warner could sell Showtime for $9, and History channel for $8, while making Showtime-History bundle available for $13. Should it use mixed bundling. i.e., sells products both separately and as a bundle?