Tosh has a chance to go to a resort that offers two plans. The deluxe plan offers full use of all its recreational classes (such as yoga and spinning) and free access to the neighboring golf course and horse-riding facilities, as well meals and a nice room. The basic plan also offers a nice room and meals, but he must play for these fine athletic amenities. Assume to offer each of these amenities to any patron cost the resort $30, which is what the resort charges anyone on the basic plan (those on the deluxe plan do not incur an extra charge to use the facilities. Tosh is planning to stay for 2 weeks, and his demand for these facilities over the course of his stay is P = 320 - 10 Q. Also assume that Tosh's preferences for the facilities are similar to the typical person staying at the resort. Finally, the resort must cover all costs, so the additional charge for the deluxe plan will reflect the extra costs the resort incurs by offering these niceties with the deluxe plan. If Tosh purchases the deluxe plan, he will use the fine facilities times.

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Tosh has a chance to go to a resort that offers two plans. The deluxe plan offers full use of all its recreational classes
(such as yoga and spinning) and free access to the neighboring golf course and horse-riding facilities, as well meals and
a nice room. The basic plan also offers a nice room and meals, but he must play for these fine athletic amenities.
Assume to offer each of these amenities to any patron cost the resort $30, which is what the resort charges anyone on
the basic plan (those on the deluxe plan do not incur an extra charge to use the facilities.
Tosh is planning to stay for 2 weeks, and his demand for these facilities over the course of his stay is P = 320 - 10 Q
Also assume that Tosh's preferences for the facilities are similar to the typical person staying at the resort. Finally, the
resort must cover all costs, so the additional charge for the deluxe plan will reflect the extra costs the resort incurs by
offering these niceties with the deluxe plan.
If Tosh purchases the deluxe plan, he will use the fine facilities
If Tosh purchases the basic plan, he will use the fine facilities
Since the resort must cover all costs, it will charge Tosh
Tosh should purchase the basic plan since it offers him.
surplus than the deluxe plan.
Comment: Try to compute the surpluses the proper way. Here is an example of what I mean:
Tosh's reservation price for the first unit is $310. Therefore, use this (instead of $320) as the greatest reservation price.
If the price were say, $290, Tosh would go 3 times. The first time would give him $310-$290 = $20 in surplus, the next
one would give him $300-$290 = $10 in surplus and the last time would give him $290-$290 = $0 in surplus. He then
has: $30/3 = $10 in average surplus or $30 overall.
times.
times.
dollars more for the deluxe plan.
dollars more in economic
The usual textbook approach would report this surplus as 3 x ($320-$290)/2= $45. This is a very crude approximation
and doesn't work as well when we are talking about discrete increments in quantity, as we are in this problem.
Transcribed Image Text:Tosh has a chance to go to a resort that offers two plans. The deluxe plan offers full use of all its recreational classes (such as yoga and spinning) and free access to the neighboring golf course and horse-riding facilities, as well meals and a nice room. The basic plan also offers a nice room and meals, but he must play for these fine athletic amenities. Assume to offer each of these amenities to any patron cost the resort $30, which is what the resort charges anyone on the basic plan (those on the deluxe plan do not incur an extra charge to use the facilities. Tosh is planning to stay for 2 weeks, and his demand for these facilities over the course of his stay is P = 320 - 10 Q Also assume that Tosh's preferences for the facilities are similar to the typical person staying at the resort. Finally, the resort must cover all costs, so the additional charge for the deluxe plan will reflect the extra costs the resort incurs by offering these niceties with the deluxe plan. If Tosh purchases the deluxe plan, he will use the fine facilities If Tosh purchases the basic plan, he will use the fine facilities Since the resort must cover all costs, it will charge Tosh Tosh should purchase the basic plan since it offers him. surplus than the deluxe plan. Comment: Try to compute the surpluses the proper way. Here is an example of what I mean: Tosh's reservation price for the first unit is $310. Therefore, use this (instead of $320) as the greatest reservation price. If the price were say, $290, Tosh would go 3 times. The first time would give him $310-$290 = $20 in surplus, the next one would give him $300-$290 = $10 in surplus and the last time would give him $290-$290 = $0 in surplus. He then has: $30/3 = $10 in average surplus or $30 overall. times. times. dollars more for the deluxe plan. dollars more in economic The usual textbook approach would report this surplus as 3 x ($320-$290)/2= $45. This is a very crude approximation and doesn't work as well when we are talking about discrete increments in quantity, as we are in this problem.
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