Please review the word docs and follow the steps for the excel.
Please answer the questions in the word doc on the second page.
Thank you.
Step 1
Prepare the date – Replace all bundle prices (highlighted in YELLOW) on the Analysis tab of the working sheet — “Bundling – PSet1 – Part 2” — by following these steps:
Go to WTP tab and look for the row with total willingness to pay for each bundle (row 103, Bundle WTP).
Add a new sheet/tab and use Excel’s transpose function to copy/paste these values in a vertical array. Copy this array and paste ‘values only’ in a separate column. Sort this column from smallest to largest values. Copy/paste the sorted values in Analysis tab to replace the bundle prices.
Observe the new Bundle Demand and Bundle Profit curves.
Step 2
For students in EU: You may need to change an Excel setting so all periods ‘.’ do not get changed to commas ‘,’. This may be the case for both Windows (see the adjacent cell) and Macintosh users. See instructions below to avoid this problem. (https://resrequest.helpspot.com/index.php?pg=kb.page&id=277). Instructions about how to change column labels from numbers to letters:
Select the File tab in the toolbar at the top of the screen
Click on Options in the menu
This will pop open the Excel Options window, click on the Formulas option on the left
Uncheck the option called “R1C1 reference style”
Click on the OK button to save changes
Step 3
In the Analysis tab, calculate the empty cells highlighted in YELLOW to answer the Part 2 questions below.
Hint: Do not forget that you have other tabs to utilize for this assignment. Review the prompts and formulas available in the spreadsheet as you work through each question.
For numeric values, you should enter up to 2 decimal places.
Question 1 What is the optimal price of a bundle? (Format as $0.00) _______
Question 2 What are the maximum profits of the firm? (Format as $0.00) _______
Question 3 How much consumer surplus do consumers keep? (Format as $0.00) _______
Question 4 At this price, what proportion of songs with positive value are not sold? (Format as 0.00%) _______
Question 5 Do any consumers’ bundles include songs that they did NOT rate?
Yes
No
Not enough information
Question 6 How much social value is not created? (Format as $0.00) Blank 1
Question 7 Total sales have increased, but does this mean total surplus kept by consumers has also increased?
No. An even higher proportion of consumer surplus has been transferred to the seller.
No. Consumers keep none of their surplus.
Yes. Because sales increase, consumer surplus also increases.
Yes. Because the seller has captured less surplus.
Question 8 What other change should be made to the original pricing strategy if the MC of each good is MC=$0.12 rather than MC=$0?
Return to independent good pricing
Drop all items with WTP < $0.12 from each person’s individual bundle
Raise bundle price by $0.12
No change, keep as-is
Analysis
ITEM SALES ITEM PRICE PROFIT BUN SALES BUN PRICE BUN PROFIT
8000 0.10 800.00 100 1 100.00 <------------ Bundled price must change to the sorted (and transposed) Total WTP for each Consumer from the WTP sheet
6000 0.25 1500.00 99 2 198.00
4000 0.50 2000.00 98 3 294.00
1700 0.90 1530.00 97 4 388.00
200 1.50 300.00 96 5 480.00
95 6 570.00
94 7 658.00
93 8 744.00
92 9 828.00
91 10 910.00
90 11 990.00
89 12 1068.00
88 13 1144.00
87 14 1218.00
86 15 1290.00
85 16 1360.00
84 17 1428.00
83 18 1494.00
82 19 1558.00
81 20 1620.00
80 21 1680.00
79 22 1738.00
78 23 1794.00
77 24 1848.00
Best Price: $ 0.50 <- Choose cell with price that maximizes profit (this will adjust item Consumer Surplus ) 76 25 1900.00 Best Price: <- Choose cell with price that maximizes profit (this will adjust Bundle Consumer Surplus)
Max Profit: $ 2,000.00 <- Choose cell with max profit 75 26 1950.00 Max Profit: $ 2,550.00 <- Choose cell with max profit
Total Available CS $ 3,740.20 Total consumer value of all songs 74 27 1998.00 Total Available CS $ 3,740.20 Total consumer value of all songs
Avg Item WTP $ 0.47 How much consumers are willing to pay for items on average 73 28 2044.00 Avg Bundle WTP $ 37.40 How much consumers are willing to pay for bundles on average?
Mode Item WTP Mode of the distribution for single item WTP 72 29 2088.00 Total CS kept Total (WTP - Price Paid) across all sold bundles
Total CS kept Total (WTP - Price Paid) across all sold songs 71 30 2130.00 % Unsold Total WTP such that 0 < WTP < Price
% Unsold Total WTP such that 0 < WTP < Price 70 31 2170.00 Missing Surplus Unsold bundles = Total Avail CS - Profit - Kept CS
Missing Surplus Total Value of Unsold items = Total Avail CS - Profit - CS Kept 69 32 2208.00
68 33 2244.00
67 34 2278.00
66 35 2310.00
65 36 2340.00
64 37 2368.00
63 38 2394.00
COMMENT: "=COUNTIF(WTP!$B$2:$CW$101,CONCATENATE(">=”,TEXT(B2,”0.00″)))” 62 39 2418.00
COMMENT: “Count each WTP item for which user value is >= price. The CONCATENATE and TEXT create a test string based on price in B2 carried to 2 digits.” 61 40 2440.00
60 41 2460.00 COMMENT: “=SUM(WTP!B106:CW106)/(COUNTIF(WTP!B2:CW101,”>0″))”
COMMENT: “=(COUNTIF(WTP!B2:CW101,”<"&B26))/(COUNTIF(WTP!B2:CW101,">0″))” 59 42 2478.00 COMMENT: “Ratio of all songs in unsold bundles to count of all songs”
COMMENT: “Ratio of all songs less valuable than price relative to all songs more valuable than zer
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