A business can produce its product in different versions: Version A has a basic design and a lower cost and Version B has an upgraded design and a higher cost of production. The business knows there are different types of customers, "High" demand (H) and "Low" demand (L), but cannot separate the different types of customers. The number of customers of each type and the maximum each type is willing to pay for the different versions of the product are illustrated in the table. In addition, the table gives the marginal cost of production for each version of the product.
|
Number
|
Type
|
Version A
|
Version B
|
|
50
|
H
|
30
|
45
|
|
100
|
L
|
20
|
25
|
|
Marginal Cost
|
10
|
20
|
a) Assume the business offers the product in Version A only. Determine the optimal price () and compute the profit of the business.
b) Assume the business offers the product in Version A and Version B. Determine the optimal prices ( and ) and compute the profit of the business.