MicroStuff is a software company that sells two popular applications, WordStuff and ExcelStuff. It doesn’t cost anything for MicroStuff to make each additional copy of its applications. MicroStuff has three types of potential customers, represented by Ingrid, Javiera, and Kathy. There are 100 million potential customers of each type, whose valuations for each application are as follows:
(a) If MicroStuff sets separate prices for WordStuff and ExcelStuff, what price should it set for each application to maximize its profit? How much profit does MicroStuff earn with these prices?
(b) What does each type of customer (Ingrid, Javiera, Kathy) buy when MicroStuff sets profit-maximizing, separate prices for WordStuff and ExcelStuff?
(c) Instead of selling the applications separately, MicroStuff decides always to sell WordStuff and ExcelStuff together in a bundle, charging a single price for both. What single price for the bundle would maximize its profit? How much profit does MicroStuff make selling its software only in bundles?
(d) What does each type of customer buy when MicroStuff sets a single, profit-maximizing price for a bundle of WordStuff and ExcelStuff? How does this compare with the answer in part (b)?
(e) Which pricing scheme does each customer type prefer? Why?
(f) If MicroStuff sold the applications both as a bundle and separately, which products (WordStuff, ExcelStuff, or the bundle) would it want to sell to each customer type? How can MicroStuff make sure that each customer type purchases exactly the product that it intends for them to purchase?
(g) What prices—for WordStuff, ExcelStuff, and the bundle—would MicroStuff set to maximize its profit? How much profit does MicroStuff make selling the products with these three prices?
(h) How do the answers to parts (a), (c), and (g) differ? Explain why.