Consider a firm faced with the following problem. There is free entry and average

economic costs are $50 at 20 units and $35 at 40 units. At any volume, it costs the firm

an additional $10 per unit to produce and market a superior version of the product.

Assume that the fixed costs of marketing the two products instead of one are negligible.

40 consumers per period are interested in the product. Half of them are not price

sensitive and want the superior version of the product even if they have to pay $50 per

unit. The other half are price sensitive and want the basic version of the product, but

will pay no more than $30 per unit. In what version, and at what price should the firm

sell the product?