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Cornucopia Media provides cable television service to several cities in the mid-Atlantic region. The firm has access to two new channels that focus on reality television programming, and the marginal cost of providing both new channels is zero. The first channel is Extreme Scottish Sports (ESS) and appeals to younger viewers, and the second channel is Delaware Entertainment and Tourism (DET) and appeals to older viewers. Based on Cornucopia's market research, younger viewers are willing to pay $5 per month for ESS, and their reservation price for DET is $0.50 per month. The same research indicates that older viewers have a reservation price of $1.00 per month for ESS and $4.00 per month for DET.Cornucopia Media provides cable television service to several cities in the mid-Atlantic region. The firm has access to two new channels that focus on reality television programming, and the marginal cost of providing both new channels is zero. The first channel is Extreme Scottish Sports (ESS) and appeals to younger viewers, and the second channel is Delaware Entertainment and Tourism (DET) and appeals to older viewers. Based on Cornucopia's market research, younger viewers are willing to pay $5 per month for ESS, and their reservation price for DET is $0.50 per month. The same research indicates that older viewers have a reservation price of $1.00 per month for ESS and $4.00 per month for DET.

a. Show how Cornucopia media can increase sales revenue by bundling the two channels rather than selling access to the channels separately. (10 marks)

b. The US Congress has recently considered legislation that would allow cable television subscribers to purchase access to separate channels (without bundling). If the law is enacted, what should we expect to happen to sales revenue in cable television markets? (10 marks)

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