26. What is the version of the exam which you have just written? Hint - your correct answer is A (A) Version A (B) Version B (C) Version C (D) Version D
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Your software company has developed Idraw, an innovative graphic-design program. As marketing manager, you have to decide on the pricing of the new software. You commissioned a study to determine the potential demand for Idraw, specifically for three different versions of the program: Idraw-max (the full version), Idraw-1 (an intermediate version), and Idraw-0 (a substantially scaled down version). From this study you learn that there are essentially two market segments of equal size, professionals and students (100,000 individuals in each segment). The willingness to pay (in $) of these two types of potential customers, for each of the versions of the software that you are considering, is summarized in the following table:
| Professionals | Students | |
| Idraw-max | 400 | 100 |
| Idraw-1 | 200 | 75 |
| Idraw-0 | 0 | 50 |
Throughout, assume that it is equally costly to sell any version. In fact, other than the initial development cost (by now a sunk cost), production costs are zero.
(a) Suppose that the company markets only Idraw-max and Idraw-0. What are the optimal prices for each of these two versions?
(b) Suppose that the company markets only Idraw-max and Idraw-1. If they are priced at $400 and $75, respectively, which version would professionals and students buy? (Hint: consumers buy the version that provides the highest net surplus). What is the profit of the firm in this case?
(c) Again assuming that only Idraw-max and Idraw-1 are being marketed, if Idraw-1 is priced at $75, what is the highest possible price for Idraw-max that still would induce professionals to buy this full version? What would the firm
