A company sells two versions of an electronic product: new and pre-owned.2 Market research shows there...

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A company sells two versions of an electronic product: new and pre-owned.2 Market research shows there are two main types of customers, high end and price conscious, and that their maximum willing- ness to pay for each of the two versions of the electronic product are Product type New Pre-owned High end $650 $300 Price conscious $350 $250 Customer type 3 The two versions of the electronic product are produced by only one company at zero marginal cost.³ Each customer type buys either 0 or 1 product; assume for simplicity there is only one customer of each type. The firm wants to maximize profits and is able to post product prices; consumers decide what they want to buy (if anything) by maximizing consumer surplus (willingness to pay minus price). (a) Suppose the firm can identify the customer type and make them different offers. What should the company do? What are the profits? (b) Suppose the firm cannot directly identify the customers. What should the company do? What are the profits? (c) Explain the two sources of the difference in profits between a) and b) (d) Show that if the high end customer valuation for pre-owned electronics was $475 instead of $300, then the screening approach does not yield maximum profits A company sells two versions of an electronic product: new and pre-owned.2 Market research shows there are two main types of customers, high end and price conscious, and that their maximum willing- ness to pay for each of the two versions of the electronic product are Product type New Pre-owned High end $650 $300 Price conscious $350 $250 Customer type 3 The two versions of the electronic product are produced by only one company at zero marginal cost.³ Each customer type buys either 0 or 1 product; assume for simplicity there is only one customer of each type. The firm wants to maximize profits and is able to post product prices; consumers decide what they want to buy (if anything) by maximizing consumer surplus (willingness to pay minus price). (a) Suppose the firm can identify the customer type and make them different offers. What should the company do? What are the profits? (b) Suppose the firm cannot directly identify the customers. What should the company do? What are the profits? (c) Explain the two sources of the difference in profits between a) and b) (d) Show that if the high end customer valuation for pre-owned electronics was $475 instead of $300, then the screening approach does not yield maximum profits

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a The company should offer the high end customer the New product at 650 and the Preowned product at ... View the full answer