Question

Netflix sells a subscription service to 2 types of customers: hardcore movie-watchers who usually watch 10 movies a month and value the service at $50 a month (or $5 per movie), and casual movie-watchers who usually watch 5 movies a month and value the service at $20 a month (or $4 per movie). There are an equal number of customers of each type. Which of the following pricing strategies generates the most profit for Netflix?
price the subscription as free and charge $4 per movie

price the subscription as free and charge $5 per movie

price the subscription at $10 and charge $4 per movie

price the subscription at $10 and charge $5 per movie

price the subscription at $20 and charge $3 per movie

price the subscription at $20 and charge nothing for each movie watched

price the subscription at $50 and charge nothing for each movie watched
I already clear A option is not right answer
help me who knows right answer... ASAP and also explain right answer..
plz don't waste my question if you have no Correct answer thank you...

Answer 1

Let the hardcore movie watchers be denoted be H

And casual movie watchers be denoted by C.

Assuming that their are only 2 customers one is H who watches 10movies a month and values the service at $50 per month and another who is C and values the service at $20 a month ( watches 5 movies)

  

IT IS CLEARLT MENTIONED IN THE QUESTION THAT HARDCORE MOVIE WATCHERS WOULD VALUE THE MOVIE AT $50per month AND CASUAL MOVIE WATCHERS WILL VALUE IT AT $20 per month.

ACCORDING to the calculations option (1) ie Free subscription and $4 per movie would be the best option to increase its profits.
However if the subscription fee is ignored and only the monthly charges are looked into then option 3 would be the best choice ie $4per movie and $10 subscription fee. Since at this price both the users H(<50) and C (<=20 ) can avail the servi