Suppose a monopoly produces film and cameras. Consumers demand pictures, which require film and one camera
Two different types of consumers have the following demand for film,
qA = 100 - 10p and qB = 80 - 10p. The monopoly cannot price discriminate in the market for film or the market for cameras, but it can bundle the products. The monopoly produces film at a constant marginal cost of $1 per roll. What price will the monopoly set for film and for cameras?
Profit equals [(8 - p) ? (80 - 10p)] + (p - 1)(180 - 20p).
Maximizing profit subject to p yields 20p - 160 + 180 - 40p + 20 = 0 or 20p = 40 or p = $2.
At that price, the firm charges (1/2)(8 - p)(80 - 10p) = $180 for a camera.
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