IBM faces two types of buyers for the printers they produce. High-valuation consumers (e..g. businesses) have a higher willingness to pay for quality (here printing speed as ppm) compared to low-valuation customers (e.g. households). We have that the total valuation for the high-valuation customers is TBH(q) = 509 – 192, where q is the printing speed (ppm) and the total valuation for the low-valuation customers is TB:(q) = 509 – 2. A printer of any quality q up 1 to q = 50 costs $250 to produce, independent of the actual speed, but producing a printer faster than q = 50 is impossible. a. Suppose that IBM can perfectly discriminate between the two groups of consumers. What quality is offered to each group? What is the maximum price that IBM can charge each group for the corresponding printer?
Question 4: IBM faces two types of buyers for the printers they produce. High-valuation consumers (e..g. businesses) have a higher willingness to pay for quality (here printing speed as ppm) compared to low-valuation customers (e.g. households). We have that the total valuation for the high-valuation customers is TBH(q) = 509 – 192, where q is the printing speed (ppm) and the total valuation for the low-valuation customers is TB:(q) = 509 – 2. A printer of any quality q up 1 to q = 50 costs $250 to produce, independent of the actual speed, but producing a printer faster than q = 50 is impossible.
a. Suppose that IBM can perfectly discriminate between the two groups of consumers. What quality is offered to each group? What is the maximum price that IBM can charge each group for the corresponding printer?
b. Suppose that IBM cannot tell the two types of customers apart and must rely on consumer self-selection. Assuming that IBM chooses to offer two products of the qualities you derived in (a), what prices can IBM charge for these two products while getting the customers to self-select and buy the product intended for them?
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