The profit that results from two-part pricing

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You are a pricing analyst for QuantCrunch Corporation, a company that sells a statistical software package. To date, you only have one client. A recent internal study reveals that this client’s demand for your software is Q=300-0.20P and that it would cost you $1,000 per unit to install and maintain software at this client’s site. The CEO of your company recently asked you compare: (There are 3 answers to this question) Please see below.

1. The profit that results from charging this client a single per-unit price with (Hint: First find Q* by applying MR=MC, and then find the P*; Find maximum profit using the formula (P*-ATC)Q*)

2. The profit that results from two-part pricing (Hint: set the per-unit price for each unit of the software installed and maintained equal to marginal cost; and charge a fixed “licensing fee” that extracts all consumer surplus from the client)

3. Which pricing strategy would you recommend to your CEO?

Reference no: EM131102779

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