Question

Assume that you manage a printer company that wants to sell its printers to commercial users and home users. You have developed two types of printers – slow printers and fast printers. Each customer type has the following valuations for each type of printer:

	Home User	Commercial User
Fast Printer	$70	$120
Slow Printer	$50	$80

If you have an equal number of home and commercial users that at most will buy 1 printer each, you will maximize revenue by setting the price of the fast printer to _______.

		$120
		$70
		$100
		$190
		$90

BOLD THE CORRECT ANSWER!

Answer 1

We can see from above table that for a fast printer Home user is willing to pay 70 and Commercial user is willing to pay 120.

For any price lesser than or equal to 70 both will buy and thus maximum revenue in that case will be when he charges price = 70, as 70 is the maximum price where both will buy and thus Revenue = 2*70 = 140

For any price lesser between 70 and 120(also equal to 120)  only commercial user will buy and thus maximum revenue in that case will be when he charges price = 120, as at 120 is te maximum price where commercial user will buy and thus Revenue = 120 = 120

For Price > 120, No one will buy and revenue = 0

Thus, Revenue will be maximum when Price = 70

Hence, the correct answer is (b) $70