Assume that a company is selling a regular product with zero incremental cost. There are two types of customers in the market: there are 50 customers (Type A) whose willingness to pay is $60; there are 100 customers (Type B) whose willingness to pay is $100.
a. What is the optimal price the company should set for this regular product? What is the optimal profit?
b. (Excel Solver) The company intends to implement a product versioning strategy by damaging some regular products to create an inferior version, which costs the company $1 per unit. Type A customers' willingness to pay for the damaged product is $40. Type B customers' willingness to pay for the damaged product is $50. What are the optimal prices for the regular product and the damaged product respectively? Does this strategy increase the company's profit?
