Question

Use the following information for this problem.   Suppose that you know the following information about the potential buyers in the markets for two types of software for which your firm is a monopolist. You cost for producing the software is 0. THIS IS THE EXACT QUESTION NO OTHER INFO AVAILABLE

Company	ArkCorp	BentonCo	CalArk	Delta-Ozarks
Value of Software 1	2M	1M	3M	0
Value of Software 2	2M	2M	0	3M

If you sell the items separately, how much total profit can you make?

Select one:

a. 12M

b. 6M

c. 13M

d. 10M

Answer 1

The correct answer is (d) 10M

Profit = Total revenue - Total Cost

As Total cost of producing soft ware is 0. Thus he has to sell at those prices that maximizes Total revenue.

FOR SOFTWARE 1 :

If he charge 1M then Ark , Benton and Cal will buy and his revenue = 1M * 3 = 3M

If he charge 2M then Ark and Cal will buy and his Revenue = 2M * 2 = 4M

If he charge 3M then only Cal all will buy and his revenue = 3M * 1 = 3M.

Hence He will charge 2M and his revenue from software 1 is 4M.

FOR SOFTWARE 2 :

If he charge 2M then Ark , Benton and Delta will buy and his revenue = 2M * 3 = 6M

If he charge 3M then only Delta all will buy and his revenue = 3M * 1 = 3M.

Hence He will charge 2M and his revenue from software 1 is 6M.

Hence Combined Revenue from both software = 4M + 6M = 10M

Profit = Total revenue - Total cost = 10M - 0 = 10M.

Thus, If you sell separately. Your Profit will be 10M

Hence, the correct answer is (d) 10M