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Suppose that Microsoft produces Word and Excel each at zero marginal cost (but very high fixed cost). Further suppose that the demand for these
Suppose that Microsoft produces Word and Excel each at zero marginal cost (but very high fixed cost). Further suppose that the demand for these products is characterized by five distinct and equal-size market segments as described in the following table: Segment Segment WTP for MS WTP for MS Number Description Word Excel 1 Professors $300 $300 2 Lawyers $400 $200 3 Consultants $200 $400 4 Writers $400 $100 5 Accountants $100 $400 (1) What are the optimal prices for Microsoft to charge for Word and Excel if it only sells the two products separately? (2) What is the optimal price for Microsoft to charge for both if it only sells the two in a bundle? (3) What are the optimal prices for a mixed bundling strategy?
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