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.

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
icon
Related questions
Question

i need in words

not handwritten solution please

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.
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.
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps

Blurred answer
Knowledge Booster
Forecasting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education