Question

CompuTrip Inc. offers two softwares, Street Finder and Trip Planner, which are produced at a cost of $2 and $1 per unit respectively (and zero fixed costs). The market research department has estimated that there are four groups of 100,000 customers each that buy the two products: professionals, travelers, geeks and ordinary consumers. Professionals have a reservation price of $12 for Street Finder and $6 for Trip Planner. Travelers have a reservation price of $10 for Street Finder and $5 for Trip Planner. Geeks have a reservation price of $8 for Street Finder and $4 for Trip Planner. Finally, ordinary consumers have a reservation price of $6 for Street Finder and $3 for Trip Planner. Based on this information, which of the following alternatives maximizes profit for the firm?

a) Sell Street Finder for $6 and Trip Planner for $3.

b) Sell Street finder for $6 and Trip planner for $4

c) Sell both (in a bundle) for a combined price of $12

d) Sell Street Finder for $12, sell Trip Planner for $4 or both (in a bundle) for a combined price of $15.

Answer 1

The answer would be option D where the firm sells Street finder for $ and Trip planner for $ or both in a combined price $

In order to find the combination that gives maximum profit, we have to calculate the Total Revenue and total cost.

First we are calculating the total revene, assuming that all customers bought a single unit of the product in all the four combinations. The total revenue is found by

Combination A:

Combination B:

Combination C:

Combination D:

So now we have the total revenue of the all the combinations.

The cost is shown below

Cost=

If we deduct the cost from all combinations, we can see that the option D gives the maximum profit