Tuan lives in a town with only one movie rental store. Suppose Tuan's demand for movie rentals per month is Q = 16 - 2P. The movie store currently charges $5 per movie but is thinking of adding a flat monthly cardholder fee and dropping the price to $2 per rental. At this new price, what is the largest cardholder fee that Tuan will pay? If the rental store has a constant marginal cost of $2, which strategy is more profitable?

Tuan lives in a town with only one movie rental store. Suppose Tuan's demand for movie rentals per month is Q = 16 - 2P. The movie store currently charges $5 per movie but is thinking of adding a flat monthly cardholder fee and dropping the price to $2 per rental. At this new price, what is the largest cardholder fee that Tuan will pay? If the rental store has a constant marginal cost of $2, which strategy is more profitable?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter6: Demand Relationships Among Goods

Section: Chapter Questions

Problem 6.14P

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