Suppose Dropbox offers two paid data-storage plans for individuals—“Plus” (1,000 GB for $8.25 per month) and “Professional” (2,000 GB for $16.58 per month). As a simplification, suppose Dropbox has created these packages to target two different types of consumers: “Light” users and “Heavy” users. Dropbox’s marginal cost of providing a GB of storage is constant. This setup is illustrated below.

Assume Dropbox’s plan selections are profit maximizing.

Are each of the following statements true or false?

1. Light users purchase the Plus plan, but if the Plus plan price were raised, they would switch to the Professional plan.

2. Heavy users purchase the Professional plan, but if the Professional plan price were raised, they would select neither plan.

3. In a market with only Heavy users, a single 2,000 GB plan would be offered, and it would still cost $16.58 per month.

4. In a market with only Light users, a single 1,000 GB plan would be offered, and it would cost less than $8.25 per month.

5. If Dropbox could observe which consumers were Light and which were Heavy and make different offers to each (i.e., it could perfectly price discriminate), then the offered plans would have the same sizes as those described above, but the prices of those plans would be strictly higher.

Answer rating: 100% (QA)

Lets analyze each statement 1 True Light users are likely to purchase the Plus plan because it offer... View the full answer