Karl values Word at $100 and Excel at $40, and Adam values Word at $20 and Excel at $90. If the programs are sold as a bundle, what is the profit-maximizing price?
A) $90
B) $100
C) $110
D) $140

Question

Quizplus · Accepted Answer

To find the profit-maximizing price, we need to find the point where the total revenue (price x quantity sold) is maximized.

Let's assume that the bundle includes one copy of Word and one copy of Excel.

If we price it at $100, Karl would be willing to pay that price ($100 for Word + $40 for Excel = $140) but Adam would not ($20 for Word + $90 for Excel = $110). Thus, we would sell only to Karl, and our total revenue would be $100.

If we price it at $90, Karl would still be willing to pay that price, but Adam would now be willing to pay as well ($20 for Word + $90 for Excel = $110). So, we would sell two copies and our total revenue would be $180.

If we price it any lower than $90, we would still sell two copies, but our total revenue would decrease.

Therefore, the profit-maximizing price is $90.

Karl Values Word at $100 and Excel at $40, and Adam