Question 6

What is the maximum profit you can achieve with the free goods pricing strategy in Question 5?

$

Part E - Standard Market

Question 7

In a standard market for a single standalone product with a marginal cost of $2 and absent

any network effects, i.e., users' valuations do not depend on how many others are using the

product, except for the purposes of marketing/brand awareness building, does it ever make

sense to give the product away for free? Assume that this is not a repeat purchase scenario.

A. Yes

B. No

Part F - Comparison

Question 8

In this network market, why are targeted giveaways (free pricing), which incur a real cost, more

profitable than a discount strategy, where at least the cost of every machine is covered? Choose

the best answer.

A. This is just an aberration and does not happen in real markets.

B. The targeted giveaway allows you to bring the lower-valuation consumers into the

market. Their presence increases demand from higher-valuation consumers, enabling

you to raise prices and revenues in a way that more than offsets the upfront losses.

The targeted giveaway allows you to bring the higher-valuation consumers into the

market and thereby increase volume, which boosts network effects.

C.

D. The discount attracts the lower-valuation consumers who are less profitable.

E. The discount attracts higher-valuation consumers who are less profitable.