Bundling Always Increases a Multi-Product Monopolist's Profit

question 45

Multiple Choice

Bundling always increases a multi-product monopolist's profit:

• A) whenever the marginal rate of substitution is decreasing.
• B) whenever an increase of a dollar in the willingness to pay for one good implies an increase of a dollar in the willingness to pay for another good and the marginal cost is zero.
• C) when doing so does not alter consumers' willingness to pay for the bundle and the monopolist can extract all of aggregate surplus as profit.
• D) if and only if the monopolist is also perfectly price discriminating.

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Definitions:

Variable Costs

Costs that change in proportion to the level of production or sales volume, such as raw materials and direct labor.

Break-even Sales

The amount of revenue required to cover both the variable and fixed costs of production, leading to a situation where a business makes neither profit nor loss.

Variable Costs

Costs that vary directly with the level of production output.

Fixed Costs

Costs that do not change with the level of production or sales, such as rent, salaries, and insurance premiums.