You have developed a software program that has three different potential configurations: basic,

deluxe, and premium. There are two potential types of buyers for your product: home users

and small business users. The following table is the result of market research on the (total)

valuations of the two buyer types for the different versions.

Version

Home users

Small business users

Basic

10

18

Deluxe

15

30

Premium

18

37

Note that the table above shows total willingness to pay, not marginal willingness to pay.

All your costs are sunk, so your profit is equal to your revenue.

a. Compute the optimal pricing scheme (i.e., a price for basic, a price for deluxe, and a price for premium - you can decide not to offer all the versions if you prefer).Assume that there are 1000 buyers of each type. Assume that when consumers are indifferent, they purchase the higher-end produce.

b. What pricing scheme maximizes total surplus (consumer plus producer surplus)?

c. What is the deadweight loss under the optimal pricing scheme relative to the outcome that maximizes total surplus (consumer plus producer surplus)?