Question

Consider Jamboree Software Inc’s problem of pricing its new word processing software. Its typical

consumers are of types: Authors and Academics (A) and Students (B). There are 100 of each type in

the market. Assume that each consumer just buys one unit of the software.

(a) Jamboree offers an office software (Version W) with advanced word processing features for which

Consumer group A has a willingness-to-pay of $200 while Consumer Group B has a willingness-to-

pay of $120 for this software. What will be Jamboree’s optimal price for Version W software? What is its profit?

(b) Now, suppose Jamboree decides to offer a more basic version of the word processing software (Version S) with some spreadsheet features for which Consumer group A has a willingness-to-pay of $140 and Consumer group B has a willingness-to-pay of $100 for this software. What should be Jamboree’s optimal prices for its product line of Version W and Version S? How much profit does it make?

Answer 1

a) If Jamboree sets a price higher than $120 then only consumers in group A will buy it but if he sets the price at$120 then consumers of both the group's A and B will buy it. So optimal price of the software will be$120 as the revenue earnings will be higher for Jamboree than in the case where price will be above $120.

Cost of production of the software is not available. Hence it is not possible to assess the profit.

b) In this case also the optimal price that is to be set by the company is$100 as the revenue earnings will be higher in this case too.

Profit cannot be assessed.