EasyTax markets both a deluxe and a standard version of its software. The deluxe version contains additional features that are likely to appeal to sophisticated users. The marginal costs of producing and distributing the two versions are virtually equal, and equal to zero. The market is equally divided into two types of users, sophisticated and unsophisticated (and assume one user of each type). The maximum willingness to pay for both types of users for the standard and deluxe versions are given in the following table: Standard Deluxe Unsophisticated 20 20 Sophisticated 35 100 (a) Assuming that the company producing EasyTax can distinguish between sophisticated and unsophisticated users (because, for instance, the sophisticated users are registered accountants), what are the optimal prices to be charged to each category of users? What is the company’s profit? (b) Assume now that the company cannot distinguish between the two types of user. What are the optimal prices for the two versions? What is the total profit?
EasyTax markets both a deluxe and a standard version of its software. The deluxe version contains additional features that are likely to appeal to sophisticated users. The marginal costs of producing and distributing the two versions are virtually equal, and equal to zero. The market is equally divided into two types of users, sophisticated and unsophisticated (and assume one user of each type). The maximum willingness to pay for both types of users for the standard and deluxe versions are given in the following table:
Standard Deluxe
Unsophisticated 20 20
Sophisticated 35 100
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(a) Assuming that the company producing EasyTax can distinguish between sophisticated and
unsophisticated users (because, for instance, the sophisticated users are registered accountants), what are the optimal prices to be charged to each category of users? What is the company’s profit?
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(b) Assume now that the company cannot distinguish between the two types of user. What are the optimal prices for the two versions? What is the total profit?
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