You have the option to produce different versions of a product or service: high quality, or low quality. The marginal cost to produce the low quality version is $3 and the marginal cost to produce the high quality version is $15. There are two types of consumers Type A and Type C with 100 consumers of each type. Each consumer will buy at most one version of the product. These consumers have the following willingness to pay:

	Low Quality	High Quality
Customer Type A	$14	$28
Customer Type C	$18	$52

1). Suppose you were to offer only the low quality version. Find the optimal price and profit. Show/Explain why these are the optimal prices/profits.

2). Suppose you were to only offer the high quality version. Find the optimal price and profit. Show/Explain why these are the optimal prices/profits.

3). Suppose you offer high and low quality versions. Find the optimal prices and profit.

4). Now suppose the firm faces three types of consumers: Type A, Type B, and Type C with 100 consumers of each type. And the firm will produce high quality, medium quality, or low quality versions of the product. The marginal cost to produce the low quality version is $3 and the marginal cost to produce the medium quality version is $5 and the marginal cost to produce the high quality version is $15. Each consumer will buy at most one version of the product. These consumers have the following willingness to pay:

	Low Quality	Medium Quality	High Quality
Customer Type A	$14	$16	$28
Customer Type B	$16	$20	$33
Customer Type C	$18	$23	$52

Your task is to find the profit maximizing prices for the high, medium, and low quality versions of the product assuming each consumer faces all prices and will purchase at most one version of the good. Find those three prices and the resulting profit!

Answer rating: 100% (QA)

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