Jack’s Software sells Accounting, Business and Tax Preparation software for small businesses. Some customers only buy their Accounting software and some customers only buy their Tax Preparation software. Jack’s Software surveys these customers and found the average willingness to pay for its Accounting and Tax Preparation software

Now, Jack’s Software is trying to decide whether to sell the Accounting and Tax Preparation software as a bundle for one price.

Assume that the incremental cost of selling 1 additional software is $0.

1. Suppose that Jack’s Software decides to have 1 price for its Accounting Software and 1 price for its Tax Preparation Software. What are the prices for its Accounting Software and its Tax Preparation Software which maximizes profits. How much are profits? How much is consumer surplus? Show your calculations

2. Suppose that Jack’s Software decides to bundle its Accounting Software and its Tax Preparation Software and charge only 1 price for both software products.

3. What is the profit maximizing price for the bundle? How much are profits? How much is consumer surplus? Show your calculations Should Jack’s Software offer the bundle of its Accounting Software and its Tax Preparation Software? Explain why or why not?

 

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Number of Accounting Tax Preparation Customers Software Software Accounting Software Customers 20,000 $1,000 $50 Tax Preparation Software Customers 15,000 $750 $100 Number of Accounting Tax Preparation Customers Software Software Accounting Software Customers 20,000 $1,000 $50 Tax Preparation Software Customers 15,000 $750 $100