A software developer has received patent protection for "Software 1" and "Software 2", so he

can act as a monopolist in the market for these two pieces of software, and marginal costs

are zero for both. She is facing two types of consumers. A consumers are willing to

pay $30 for Software 1, and $40 for Software 2. Type B consumers are willing to pay $20 for

Software 1 and $30 for Software 2. Assume that there are 100 consumers of A and 150

consumers of Type B.

a) Assume that the monopolist prices Software 1 at $30 per unit, and Software 2 at $20

per unit. Find her profits for each type of consumer. (1 mark) Find consumers' surplus

for each type of consumer (1 mark)

b) Assume that the monopolist prices Software 1 at $20 per unit, and Software 2 at $30 per

unit. Find her profits for each type of consumer. (0.5 mark) Find consumers' surplus

for each type of consumer (0.5 mark)

c) Between the two pricing schemes in part a) and b) above, which one would the

monopolist choose? (0.25 marks) Which of the two schemes would A consumers

prefer? (0.25 marks) Which of the two schemes would Type B consumers prefer? (0.5

marks) Explain your answers.

d) Suppose that the monopolist sells the two products as a bundle for $50. Find her

profits, and surplus for both types of consumers. (1 marks) Find her profits and surplus

for both types of consumers if she were to price the bundle at $70. (1 mark)

e) Suppose now that there are 100 A consumers and n Type B consumers. The

monopolist is considering selling the two goods as a bundle for either $50 or $70. For

what values of n would she price the bundle at $70? (2 marks)