Suppose your marketing department does a survey of potential users and finds tha
ID: 1255004 • Letter: S
Question
Suppose your marketing department does a survey of potential users and finds that these users place the following values on the two versions of your software:Software Version Home Users Commercial Users
Full Version $175 $225
Disabled Version $150 $200
If the numbers of home and commercial users are equal, and you cannot distinguish between commercial and home users, what is the most profitable pricing strategy? Assume the MC of production is zero. Explain your answer.
a. Sell to only commercial users.
b. Sell to only home users.
c. Sell to both groups using a single price.
d. Sell to both groups at two different prices.
Explanation / Answer
The answer is D. In tis case, we can price descriminate between the two different users based on their demand levels. If we did this, we would get half the people paying 175 for the home version and half paying 225 for comercial. If we charged one price, for instance the lwer price to all customers, we would not be at the profit maximizing condition of MC=MR. If we sold at the higher price, only half of the supply we would normally sell would actually sell. This is why we discriminate based on the demand curve and preference of the consumer. Hope this helps
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