A golf club’s owner has commissioned a market study that estimates the average customer’s monthly demand curve for playing 18-hole golf game to be Q=50 – 0.5P, where Q stands for the number of 18-hole golf game, and P is the green fee. The marginal cost is given by MC=20. (1) Under two-part pricing strategy, what is the optimal amount of green fee to charge for one round of 18-hole golf game? (2) Under two-part pricing strategy, what is the optimal amount of membership due? (3) Under two-part pricing strategy, what is the size of the profit obtained from the average customer?

A golf club’s owner has commissioned a market study that estimates the average customer’s monthly demand curve for playing 18-hole golf game to be Q=50 – 0.5P, where Q stands for the number of 18-hole golf game, and P is the green fee. The marginal cost is given by MC=20. (1) Under two-part pricing strategy, what is the optimal amount of green fee to charge for one round of 18-hole golf game? (2) Under two-part pricing strategy, what is the optimal amount of membership due? (3) Under two-part pricing strategy, what is the size of the profit obtained from the average customer?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter18: Asymmetric Information

Section: Chapter Questions

Problem 18.4P

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You are the manager of a golf course. For simplicity assume that you only have two potential customers – a high demand customer whose inverse demand for golf services is given by P = 10 – 0.5Q and a low demand customer whose inverse demand for golf services is given by P = 8 – 0.5Q. Suppose the marginal cost to the golf course of each round of golf is zero.Suppose you have to charge both players the same two-part pricing strategy. Which of the following pricing strategies will yield the highest profit for you? A. Charge a fixed fee of €100 and a per unit fee of zero B. Charge a fixed fee of €64 and a per unit fee of zero C. Charge a fixed fee of €64 and a per unit fee of €4 D. Charge a fixed fee of €128 and a fixed fee of zero.
Identify nine common pricing methods.
You own a franchise of rental car agencies in Florida. You recently read a report indicating that about 80 percent of all tourists visit Florida during the winter months in any given year and that 60 percent of all tourists traveling to Florida by air rent automobiles. Travelers not planning ahead often have great difficulty finding rental cars due to high demand. However, during nonwinter months tourism drops dramatically and travelers have no problem securing rental car reservations. Determine the optimal pricing strategy, and explain why it is the best pricing strategy.
You are a medical group manager. Some market research has suggested that the price elasticity of demand for the services of your physicians is −4.1. The marginal cost for the average unit of physician service in your group is approximately $536. A. Using the economic pricing model formula, calculate your profit-maximizing price for each unit of physician services. B. Suppose that your medical group is considering new contracts with two particular businesses to provide physician services to their employees. If the marginal cost for each service unit is the same as with the rest of your customers, but the price elasticity of demand from the first new business customers is −0.9, and the second group of business customers is −4.4, how would that change your profit-maximizing price for each of the new groups? Would you recommend that your medical group obtain contracts with both new groups, just one of them or none? Explain your reasoning. C. In order to maximize your profits, what specific…
Joe has moved to a small town with only one golf course. His demand curve is P = 120 – 2Q where Q is the number of rounds of golf he plays per year. The manager of the golf course offers Joe a special deal, where Joe pays an annual membership fee and can play as many rounds of golf as he wants to at $20 per round. The golf course’s Marginal Cost is $20. - If the golf course wishes to implement a two-part pricing model, what membership fee will maximize revenue for the golf course? Please show your calculations. - How many rounds of golf will Joe play per year (calculate the value of Q*)? Please explain. - Would someone who just occasionally plays golf (perhaps 1 or 2 rounds once every 2 months) prefer two-part pricing as given above, or would they prefer to pay a price of $100 per round without any membership fee? Please explain.
A golf cub’s owner has commissioned a market study that estimates the average customer’s monthly demand curve for playing 18-hole golf game to be Q=50 – 0.5P, where Q stands for the number of 18-hole golf game, and P is the green fee. The marginal cost is given by MC=20. (1) Under two-part pricing strategy, what is the optimal amount of green fee to charge for one round of 18-hole golf game? (2) Under two-part pricing strategy, what is the optimal amount of membership due? (3) Under two-part pricing strategy, what is the size of the profit obtained from the average customer?
The information in the table below shows the total demand for premium-channel digital cable TV subscriptions in a small urban market. Assume that each digital cable TV operator pays a fixed cost of $200,000 (per year) to provide premium digital channels in the market area and that the marginal cost of providing the premium channel service to a household is zero. 1. Assume there are two profit-maximizing digital cable TV companies operating in this market. Further assume that they are not able to collude on the price and quantity of premium digital channel subscriptions to sell, how many premium digital channel cable TV subscriptions will be sold altogether and what price will be charged when this market reaches a Nash equilibrium? 2. Under the conditions given in Question #3 of this problem, how much profit will each firm earn when this market reaches a Nash equilibrium? 3. What is the socially efficient level of digital premium channel subscriptions for this market and at what…
You estimate that a typical consumer’s inverse demand function is P=200-20Q and your cost function is C=80Q. Determine the optimal two-part pricing strategy. How much will 4 consumers pay?
Joe has moved to a small town with only one golf course. His demand curve is P = 120 – 2Q where Q is the number of rounds of golf he plays per year. The manager of the golf course offers Joe a special deal, where Joe pays an annual membership fee and can play as many rounds of golf as he wants to at $20 per round. The golf course’s Marginal Cost is $20. (a) If the golf course wishes to implement a two-part pricing model, what membership fee will maximize revenue for the golf course? Please show your calculations. (b) How many rounds of golf will Joe play per year (calculate the value of Q*)? Please explain. (c) Would someone who just occasionally plays golf (perhaps 1 or 2 rounds once every 2 months) prefer two-part pricing as given above, or would they prefer to pay a price of $100 per round without any membership fee? Please explain.
A manager of a nightclub realizes that demand for drinks is more elastic among students and is trying to determine the optimal pricing schedule. Specifically, he estimates the following average demand for his customer types: Under 25: qr =18-5p Over 25: q=10-2p The two age groups visit the nightclub in equal numbers on average. Assume that drinks cost the club $2 to make. If the manager can charge a separate entry fee and a price per drink for each group, what two-part price will the manager set for reach group. Now suppose that once again it is impossible to identify which group the customers belong. Suppose the manager lowers the price of drinks to equal to marginal cost and still wanted to attract both customers, what entry fee would the manager set? Compare the profits earned in parts a) to d). Which scheme would you choose if you could not identify customer type and which would you choose if you could identify customer type.
As a manager of a chain of movie theaters that are monopolies in their respective markets, you have noticed much higher demand on weekends than during the week. You therefore conducted a study that has revealed two different demand curves at your movie theaters. On weekends, the inverse demand function is P = 20 - 0.001Q; on weekdays, it is P = 15 - 0.002Q. You acquire legal rights from movie producers to show their films at a cost of $25,000 per movie, plus a $2.50 "royalty" for each moviegoer entering your theaters (the average moviegoer in your market watches a movie only once). What price should you charge on weekends? What price should you charge on weekdays?
There are two types of consumers in Melbourne: students and non-students. The student population is 10, and each student’s demand of printing paper is Q=1−P, for P<1.The non-student population is 40, and each non-student’s demand of printing paper is Q=3−P, for P<3. Suppose OfficeMax is the only seller of printing paper in Melbourne. Assume zero production cost. Suppose OfficeMax cannot offer student discounts, and every customer has to pay the same price P. Derive the aggregate demand curve (for both students and non-students), and illustrate it in a diagram.