MicroStuff is a software company that sells two popular applications, WordStuff and ExcelStuff. It..

MicroStuff is a software company that sells two popular
applications, WordStuff and ExcelStuff. It doesn’t cost anything for MicroStuff
to make each additional copy of its applications. MicroStuff has three types of
potential customers, represented by Ingrid, Javiera, and Kathy. There are 100
million potential customers of each type, whose valuations for each application
are as follows:

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(a) If MicroStuff sets separate prices for WordStuff and
ExcelStuff, what price should it set for each application to maximize its
profit? How much profit does MicroStuff earn with these prices?

(b) What does each type of customer (Ingrid, Javiera,
Kathy) buy when MicroStuff sets profit-maximizing, separate prices for
WordStuff and ExcelStuff?

(c) Instead of selling the applications separately,
MicroStuff decides always to sell WordStuff and ExcelStuff together in a
bundle, charging a single price for both. What single price for the bundle
would maximize its profit? How much profit does MicroStuff make selling its
software only in bundles?

(d) What does each type of customer buy when MicroStuff
sets a single, profit-maximizing price for a bundle of WordStuff and
ExcelStuff? How does this compare with the answer in part (b)?

(e) Which pricing scheme does each customer type prefer?
Why?

(f) If MicroStuff sold the applications both as a bundle
and separately, which products (WordStuff, ExcelStuff, or the bundle) would it
want to sell to each customer type? How can MicroStuff make sure that each
customer type purchases exactly the product that it intends for them to
purchase?

(g) What prices—for WordStuff, ExcelStuff, and the
bundle—would MicroStuff set to maximize its profit? How much profit does
MicroStuff make selling the products with these three prices?

(h) How do the answers to parts (a), (c), and (g) differ?
Explain why.

 

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