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You have learned the concepts of reservation price and consumer value. Let us see how the bundling strategy can possibly increase a company's profit in
You have learned the concepts of "reservation price" and "consumer value. Let us see how the bundling strategy can possibly increase a company's profit in real-life business settings. The following table contains different consumers' values for three software titles: PowerPoint, Excel, and Word. Suppose there are 100 consumers of each type. It costs Microsoft $5 to produce each piece of software. There are 4 possible pricing strategies (A, B, C, D) listed below. Which strategy should Microsoft adopt if it wants to devise a pricing strategy that is incentive compatible between consumer types and will maximize its profit? Why? Show your calculations, compare/rank all choices, and explain. (You can directly type your answers in the Message box or attach a Word document to show your calculations. Your score is based on your explanation.) Consumer Types Accountants Marketing Sales Administrative Assistants PowerPoint $75 $125 $50 Excel $100 $80 $175 Word $150 $135 $75 A. charge $50 for PowerPoint, $80 for Excel, and $75 for Word. B. charge a single price of $300 for the bundle of PowerPoint, Excel, and Word. C. charge $125 for PowerPoint, $175 for Excel, and $150 for Word. D. charge $325 for the bundle of PowerPoint, Excel, and Word and permit consumers to purchase each software title individually at $81.10 each
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