MicroStuff is a software company that sells two popular applications, WordStuff and Excel Stuff. It doesn't cost anything for MicroStuff to make each additional copy of its applications. MicroStuff has three tyes 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:

WordStuff ExcelStuff Bundle

Ingrid 100 20 120

Javiera 30 100 130

Kathy 80 0 80

(a)

If MicroStuff sets separate prices for WordStuff and ExcelStuff, what price should it set for each application to maximize its profit? What does each type of customer buy? How much profit does MicroStuff earn with these prices?

(b)

Instead of selling the applications separately, MicroStuff decides always to sell WordStuff and ExcelStuff together in a bundle. What single price for the bundle would maximize its profit? What does each type of customer buy? How does this compare with the answer in part (a)? How much profit does MicroStuff make selling its software only in bundles? Suppose selling more is better than less if the profits are the same.

(c)

Which pricing scheme in (a) and (b) does each customer type prefer why?

(d)

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 to extract as much of their surplus as possible? With which pricing scheme can MicroStuff make sure that each customer type purchases exactly the product that it intends for them to purchase? What is the resulting profit?

(e)

If MicroStuff sold the applications both as a bundle and separately, can the pricing scheme in (d) generates the highest profit? If not, what is the reason? What prices - for WordStuff, ExcelStuff, and the bundle - would MicroStuff set to maximize its profit instead?