Q1: (60 pts) You are selling a commercial software product called "Link" which is available in two versions - a basic Link Professional and a premium Link Industrial. There are two potential corporate customers, each of whom is interested in buying Link Professional or Link Industrial, but not both. Your objective is to maximize the total revenue from selling the software. Because your customers are in a regulated industry, you must sell by posting one price for Link Professional and another price for Link Industrial. Each buyer seeks to maximize her corporation's surplus (that is, willingness to pay minus price paid) and may buy Link Professional or Link Industrial or neither depending on the prices that you post. Please show all intermediate steps and clearly explain your reasoning. Part A: What is the optimal price and resulting revenue using the willingness to pay (WTP) data below? What (if anything) would each customer buy? (40 pts) Part B: If you could identify each buyer and make targeted offers, what price would you offer to each and how much revenue would you earn? What (if anything) would each buy? (20 pts) The willingness to pay (WTP) of the two potential buyers is: WTP of Corporation A WTP of Corporation B Link Professional $4000 $3000 Link Industrial $6000 $5000 For example, if the posted price of Link Professional was $3500 and Link Industrial was $5999: Corporation A sees $4000 - $3500 = $500 of surplus from Link Professional, and $6000 - $5999 = $1 from Link Industrial. Corporation A buys Link Professional. Corporation B sees $3000 - $3500= negative $500 of surplus from Link Professional, and $5000 $5999 = negative $999 from Link Industrial. Corporation B does not buy either version. (Assignment continues on the next page.) Q1: (60 pts) You are selling a commercial software product called "Link" which is available in two versions - a basic Link Professional and a premium Link Industrial. There are two potential corporate customers, each of whom is interested in buying Link Professional or Link Industrial, but not both. Your objective is to maximize the total revenue from selling the software. Because your customers are in a regulated industry, you must sell by posting one price for Link Professional and another price for Link Industrial. Each buyer seeks to maximize her corporation's surplus (that is, willingness to pay minus price paid) and may buy Link Professional or Link Industrial or neither depending on the prices that you post. Please show all intermediate steps and clearly explain your reasoning. Part A: What is the optimal price and resulting revenue using the willingness to pay (WTP) data below? What (if anything) would each customer buy? (40 pts) Part B: If you could identify each buyer and make targeted offers, what price would you offer to each and how much revenue would you earn? What (if anything) would each buy? (20 pts) The willingness to pay (WTP) of the two potential buyers is: WTP of Corporation A WTP of Corporation B Link Professional $4000 $3000 Link Industrial $6000 $5000 For example, if the posted price of Link Professional was $3500 and Link Industrial was $5999: Corporation A sees $4000 - $3500 = $500 of surplus from Link Professional, and $6000 - $5999 = $1 from Link Industrial. Corporation A buys Link Professional. Corporation B sees $3000 - $3500= negative $500 of surplus from Link Professional, and $5000 $5999 = negative $999 from Link Industrial. Corporation B does not buy either version. (Assignment continues on the next page.)
