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by prachi18oct » Thu Mar 26, 2015 9:01 am
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I chose E as this option if evaluated may either increase cost to consumer(in form of new device) or not increase. So why can we neglect this possibility.
The conclusion is to reduce the consumer cost by offering ala carte channels.

Please explain
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by DavidG@VeritasPrep » Thu Mar 26, 2015 9:37 am
Imagine a really simple scenario. Say that we only have two channels total in our cable world, HBO and TLC. Let's also say we have the following options:

Package: $40 for both

A la carte: $30 for HBO only; $20 for TLC only.

According to the cable industry, the package deal is cheaper. Buying both channels via the a la carte option will be $50, but the bundle is only $40.

However, if I only want HBO, the a la carte option will cost me $30, but the package will charge me $40, essentially forcing me to pay extra for this other channel that I have no interest in!

Put another way, if I don't want to reduce the number of channels I buy, and I want both HBO and TLC, the bundle is cheaper. But if I do want to reduce the number of channels I buy, then the a la carte option is cheaper. Only answer choice C addresses this issue of whether consumers will want to reduce the number of channels they buy.
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