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You produce Word and Excel. You have two customers, Customer A and Customer B. The willingness to pay for each item for each customer appears below.
Customer A Customer B
Word $9 $15
Excel $24 $15
In parts A, B, and C below, assume that Marginal Cost (MC) is zero for both Word and Excel.
A) If you sell Word and Excel separately, what price for each maximizes your profit? What is your total profit?
B) If you bundle Word and Excel together, what bundle price maximizes your profit? What is your profit?
C) What is the optimal mixed bundling strategy? Is there an advantage to mixed bundling in this example? Why or why not?
Now assume that MC has increased from zero to 10 for each unit of Excel and each unit of Word. Repeat parts A, B, and C with this change in costs.
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