Question #4

A manufacturer of microwaves has discovered that male shoppers have little value for microwaves and attribute almost no extra value to an auto-defrost feature. Female shoppers generally value microwaves more than men do and attribute greater value to the auto-defrost feature. There is little additional cost to incorporating an auto-defrost feature. Since men and women cannot be charged different prices for the same product, the manufacturer is considering introducing two different models. The manufacturer has determined that men value a simple microwave at $59 and one with auto-defrost at $76, while women value a simple microwave at $76 and one with auto-defrost at $135.

Suppose the manufacturer is considering three pricing strategies:

1.Market a single microwave, with auto-defrost, at $76, to both men and women.

2.Market a single microwave, with auto-defrost, at $135, to only women.

3.Market a simple microwave to men, at $59. Market a microwave, with auto-defrost, to women at $117.

For simplicity, assume there is only 1 man and 1 woman and that if the price of a microwave is equal to an individual's willingness to pay, the individual will purchase the microwave.

Use the following table to indicate the revenue from men, the revenue from women, and the total revenue from each strategy.

Strategy Revenue from Men Revenue from Women Total Revenue from Strategy

1. Auto-Defrost Microwave only at $76______ ________ ________

2. Auto-Defrost Microwave only at $135_______ _______ ________

3. Simple Microwave at $59,

Auto-Defrost Microwave at $117 ______ ______ ________

Suppose that, instead of one man and one woman, the market for this microwave consisted entirely of women. For simplicity, you can assume this means that there are two women, and no men.

Under these conditions, pricing strategy ( 1,2,or 3) would maximize revenue for the manufacturer.

Question #5

The pricing model for iTunes has been to price songs individually. In contrast, Spotify opted to offer unlimited song playing for a monthly fee.

True or False: Spotify's pricing model will likely yield more profit if the value of the "bundle" of unlimited songs is more homogeneous across consumers than the values of the individual songs.