Question

10.10 Your software company has just completed the first version of SpokenWord, a voice-activated word processor. As marketing manager, you have to decide on the pricing of the new software. You commissioned a study to determine the potential demand for SpokenWord. From this study, you know that there are essentially two market segments of equal size, professionals and students (one million each). Professionals would be willing to pay up to $400 and students up to $100 for the full version of the software. A substantially scaled-down version of the software would be worth $50 to consumers and would be worthless to professionals. It is equally costly to sell any version. In fact, other than the initial development costs, production costs are zero a. What are the optimal prices for each version of the software? Suppose that, instead of the scaled-down version, the firm sells an intermediate version that is valued at $200 by professionals and $75 by students. (b) What are the optimal prices for each version of the software? Is the firm better off by selling the intermediate version instead of the scaled-down version?

Answer 1

Your software company has just completed the first version of spoken word, a voice - activated word processor. As marketing manager, you have to decide on the pricing of the new software . professionals would be willing to pay up to $ 400 & student up to $ 100 for full version of software. What is the optimal prices for each version of the software? Given Professionals would be willing to pay upto $ 400 and student up to $ 100. A substantially scale - down version at $ 400 to professionals who are ready to purchase it and the scaled - down version at $ 50 therefore the total profits would amount to about $ (400 + 50) = $ 450 million. Suppose that, instead of the scaled - down version, the firm sells an intermediate version that is valued at $ 200 by professionals and $ 75 by students What is the optimal prices for each version of the software. Given firm sells