Bundling is likely to increase total surplus if:
A) the costs of production are U-shaped.
B) fixed costs are high and marginal costs are low.
C) most of the costs are associated with variable inputs.
D) all consumers have the same willingness to pay.

Question

Quizplus · Accepted Answer

Bundling increases total surplus when fixed costs are high and marginal costs are low. This is because bundling allows the seller to spread fixed costs over multiple products, reducing the average cost per unit. Additionally, bundling enables the seller to extract more value from consumers who have a high willingness to pay for specific products by charging a higher price for the bundle. This results in an increase in total surplus for both the seller and the consumers.

Bundling Is Likely to Increase Total Surplus If