(8th edition) (the pearson series in economics) robert pindyck, daniel rubinfeld microecon 463

438 PART 3 • Market Structure and Competitive Strategy
as high if we offered the Sports Channel and the
Movie Channel together as a bundle, and only as a
bundle.” Do you agree or disagree? Explain why.
d. Suppose the cable company continues to use mixed
bundling to sell these two services. Based on the distribution of reservation prices shown in Figure 11.21,
do you think the cable company should alter any of
the prices that it is now charging? If so, how?
*17. Consider a firm with monopoly power that faces the
demand curve
P = 100 - 3Q + 4A1/2

and has the total cost function
C = 4Q2 + 10Q + A
where A is the level of advertising expenditures, and P
and Q are price and output.
a. Find the values of A, Q, and P that maximize the
firm’s profit.
b. Calculate the Lerner index, L ϭ (P − MC)/P, for this
firm at its profit-maximizing levels of A, Q, and P.