Suppose the monthly demand for golf services by serious golfers at a golf club is given by the inverse demand function, P = 10 – Q. The marginal cost to the golf club for each round is 0. There are 100 serious golfers with exactly the same inverse demand functions. The fixed costs of running the club are €500 a month. The golf club currently charges each person €5 per round and each serious golfer plays 5 rounds of golf a week. a. Suppose you are a pricing consultant for the club. Calculate the optimal two-part strategy (i.e. the unit fee and the fixed/entry fee) that the club should charge. Show your calculations. How many rounds of golf will each player play under this pricing strategy? Calculate the consumer surplus that each serious golfer receives under this pricing strategy
Added by Phillip S.
Step 1
Since the marginal cost is 0, we can set the inverse demand function equal to 0 to find the quantity: 10 - Q = 0 Q = 10 Show more…
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Joe has just moved to a small town with only one golf course, the Northlands Golf Club. His inverse demand function is $p=120-2 q,$ where $q$ is the number of rounds of golf that he plays per year. The manager of the Northlands Club negotiates separately with each person who joins the club and can therefore charge individual prices. This manager has a good idea of what Joe's demand curve is and offers Joe a special deal, where Joe pays an annual membership fee and can play as many rounds as he wants at $\$ 20,$ which is the marginal cost his round imposes on the Club. What membership fee would maximize profit for the Club? The manager could have charged Joe a single price per round. How much extra profit does the club earn by using two-part pricing? A
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Two-Part Pricing
Suppose the total monthly demand for golf services is Q = 20 - P. The marginal cost to the firm of each round is $1. If this demand function is based on the individual demands of 10 golfers, what is the optimal two-part pricing strategy for this golf services firm? How much profit will the firm earn?
Azat N.
Joe has just moved to a small town with only one golf course, the Northlands Golf Club. His inverse demand function is pequals 160minus2 q, where q is the number of rounds of golf that he plays per year. The manager of the Northlands Club negotiates separately with each person who joins the club and can therefore charge individual prices. This manager has a good idea of what Joe's demand curve is and offers Joe a special deal, where Joe pays an annual membership fee and can play as many rounds as he wants at $20 , which is the marginal cost his round imposes on the Club. What membership fee would maximize profit for the Club? The manager could have charged Joe a single price per round. How much extra profit does the Club earn by using two-part pricing? The profit-maximizing membership fee (F) is $nothing . (Enter your response as a whole number.)
Lottie A.
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