Question

Albatross Software has two main products: WindSong is a program that can be used to edit audio files and SunBurst is a program that can be used to edit digital photos. The two major types of customers are small businesses and home users. The small business customers have a reservation price of $300 for WindSong and $450 for SunBurst. The home users have a reservation price of $100 for WindSong and $125 for SunBurst. Which of the following statements is true?

A) Bundling the two software products is not likely to be profitable because the marginal cost of producing sofware is positive by very small.
B) Bundling the two software products is not likely to be profitable because the consumer demands are homogeneous.
C) Bundling the two software products is likely to be profitable because the demands are negatively correlated
D) Bundling the two software products is not likely to be profitable because the demands are positively correlated.

Answer 1

D) Bundling the two software products is not likely to be profitable because the demands are positively correlated.

Step-by-step explanation:

The demand for both products I positively correlated, meaning that a user that purchases one will likely purchase the other one.

Bundling products is generally profitable when the demand for the products is not heterogenous and price discrimination is difficult. In this case, price discrimination is not difficult, and the demand is homogeneous.