A software company sells two applications, noted A and B, that are totally unrelated to one another. The marginal cost of production for each application is constant and is equal to 10. The company faces four categories of potential buyers, which are characterized by a pair of reservation prices as depicted in the following table; it is assumed that each category counts the same mass of consumers, which is set to 1.

1. What price should the company set for each application if it decides to sell them separately? What profits will the company achieve in this case and which categories of consumers will buy which application?

2. Suppose now that the company pursues a mixed bundling strategy. Which price should it set for the bundle and for the separate applications? What profits will the company achieve in this case and which categories of consumers  will choose which option? Is mixed bundling more profitable than spearate selling? Discuss.

3. How would your answers to (1) and (2) change if the marginal cost of production increased from 10 to 40?

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Application A 100 Application B Category 1 Category 2 Category 3 Category 4 30 80 60 80 60 30 100