QUESTION $6\mathrm{.}3$

MBA Magazine is considering two ways of selling its monthly print magazine. One

alternative is to offer the magazine at news stands for a given price per issue. The second

alternative is to offer the magazine as a package of $12$ issues for a single annual subscription price.

Through market research, the magazine finds that it has $100,000$ potential customers who are likely

to value six of the twelve issues at $$5$ per issue and the remaining six issues at $$1$ per issue. Since

consumers are heterogeneous $($not all the same$),$ they don't all value the same six issues at the

higher valuation. The magazine has $$1$ million per year in fixed costs and the marginal cost of

printing and distributing the magazine is $$0\mathrm{.}50$ per issue.

a$.$ Under the pricing per issue scheme, at what price per issue would MBA Magazine

maximize its profit? N What is this profit? N

b$.$ Under the pricing per subscription scheme, what annual subscription rate would MBA

Magazine use? N What is this profit? N

c$.$ Let's assume that MBA Magazine is currently producing and selling its magazine under

the first pricing scheme $($per issue price$).$ They are considering bundling the content of the

$12$ issues per year into $6$ issues per year. This would save on printing costs. Would the

bundling allow them to increase revenues as well? Explain.

d$.$ MBA Magazine is considering developing an Internet edition to supplement its print

edition. The Internet edition would involve no additional costs and would be available free

of charge to anyone. Is this a good idea? Why or why not?