4. The Solve-It-All Corp. (SIAC) has just developed its newest line of all-purpose mathematical problem-solving software, at a development cost that is estimated to be $500,000. This software is available in two versions: "Heavy-Duty", which will solve any problem extremely quickly; and "Pretty-Good", which has difficulties in solving some complex problems and generally takes longer to reach any solution. SIAC's marketing surveys have shown that there are two potential groups of customers for its software: engineers, and college students. There are 10,000 likely customers in each group. But at the time of purchase, SIAC cannot distinguish among the types of customers. Each customer is willing to buy either one copy of the "Heavy-Duty" or one copy of the "Pretty-Good", but not both. The maximum willingness to pay of each group for the two versions is as follows: Engineers Students Pretty-Good $40 $30 Heavy-Duty $110 $60 Since this is software, the marginal costs can be considered to be zero. a. What prices should SIAC charge for its two versions of software if it wants to maximize its profits? Briefly explain your answer. b. Suppose that there are 20,000 student customers (instead of 10,000). Does this change your answer to #a? If yes, what is your new answer? Briefly explain. If no, briefly explain why not.
4. The Solve-It-All Corp. (SIAC) has just developed its newest line of all-purpose mathematical problem-solving software, at a development cost that is estimated to be $500,000. This software is available in two versions: "Heavy-Duty", which will solve any problem extremely quickly; and "Pretty-Good", which has difficulties in solving some complex problems and generally takes longer to reach any solution. SIAC's marketing surveys have shown that there are two potential groups of customers for its software: engineers, and college students. There are 10,000 likely customers in each group. But at the time of purchase, SIAC cannot distinguish among the types of customers. Each customer is willing to buy either one copy of the "Heavy-Duty" or one copy of the "Pretty-Good", but not both. The maximum willingness to pay of each group for the two versions is as follows: Engineers Students Pretty-Good $40 $30 Heavy-Duty $110 $60 Since this is software, the marginal costs can be considered to be zero. a. What prices should SIAC charge for its two versions of software if it wants to maximize its profits? Briefly explain your answer. b. Suppose that there are 20,000 student customers (instead of 10,000). Does this change your answer to #a? If yes, what is your new answer? Briefly explain. If no, briefly explain why not.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:4. The Solve-It-All Corp. (SIAC) has just developed its newest line of all-purpose mathematical
problem-solving software, at a development cost that is estimated to be $500,000. This software is
available in two versions: "Heavy-Duty", which will solve any problem extremely quickly; and
"Pretty-Good", which has difficulties in solving some complex problems and generally takes longer
to reach any solution.
SIAC's marketing surveys have shown that there are two potential groups of customers for its
software: engineers, and college students. There are 10,000 likely customers in each group. But at
the time of purchase, SIAC cannot distinguish among the types of customers. Each customer is
willing to buy either one copy of the "Heavy-Duty" or one copy of the "Pretty-Good", but not both.
The maximum willingness to pay of each group for the two versions is as follows:
Engineers
Students
Pretty-Good
$40
$30
Heavy-Duty
$110
$60
Since this is software, the marginal costs can be considered to be zero.
a. What prices should SIAC charge for its two versions of software if it wants to maximize its
profits? Briefly explain your answer.
b. Suppose that there are 20,000 student customers (instead of 10,000). Does this change your
answer to #a? If yes, what is your new answer? Briefly explain. If no, briefly explain why not.
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