Photoshop Version                               Household User                                             Professional User

Full Version                                           $125                                                               $950

Discount Version                                   $100                                                               $300

Also, assume that the “target market” has 1 Household and 1 Graphic Designer (a simple way of representing equal proportions of each type of customer). The marginal cost of production is $0.

Part 1: If Adobe sells only to Graphic Designers, what is the optimal price and associated profit?

Part 2: Can Adobe use price discrimination to improve upon the profit in Parts 1 and 2? If so, how? (be specific) (hint: price discrimination doesn’t always work in these settings, so don’t assume that it is always optimal. If it is not optimal, see if you can figure out what numbers would need to change to make price discrimination an optimal strategy).