Karl values Word at $100 and Excel at $40, and Adam values Word at $20 and Excel at $90. If the programs are sold separately, what are the profit-maximizing prices?
A) $20 for Word; $40 for Excel
B) $20 for Word; $90 for Excel
C) $100 for Word; $40 for Excel
D) $100 for Word; $90 for Excel

Question

Quizplus · Accepted Answer

The profit-maximizing prices occur where the marginal cost equals the marginal revenue, which is the highest price customers are willing to pay for the program. Based on the valuations from Karl and Adam, Word has the highest value for Karl at $100, and Excel has the highest value for Adam at $90. Therefore, selling Word at $100 and Excel at $90 would maximize profits as it meets the highest price customers are willing to pay.

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