What would be your profits from a typical business customer

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Assignment:

You are an executive for a company that rents out server space on super computers. Your firm has two types of potential customers: businesses and academic researchers.

A typical business customer has the demand function Q=10-P, where Q is in days of computing power used per month. The typical academic customer has the demand Q=8-P. The marginal cost of additional computing is $2 per day, regardless of volume. Assume that fixed costs are zero.

You are charging a two-part tariff with a monthly subscription fee (F) and a usage price per day (P).

a) What subscription fee and usage price would you charge for business customers?

What would be your profits from a typical business customer?

b) Suppose you are initially only offering the business option of the software (i.e., at the F and P computed in a). Would a typical academic customer buy that option? Why or why not? Hint: compute the consumer surplus of academic users under the pricing scheme for business customers.

c) After taking a class on complex pricing, you create a special deal for people who can show proof for an academic affiliation. What F and P would you charge for academic customers? What would be your profits from a typical academic customer?

d) Which two complex pricing strategies does your new pricing scheme combine?

e) If you do not ask for proof of an academic affiliation, which problem can arise with your pricing schemes? Hint: What would business customers do if they learned about the academic deal?

Reference no: EM133440679

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