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.)

Question

Aaron Donovan

Business

30 May, 11:42

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.)

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Answers (1)

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Punkin · Answer 1

Club membership fee of $60 would maximize profit.

If the club charges tow part pricing the maximum revenue can be $3500.

Explanation:

Joe has entered into a monopoly because he is owner of single golf course in the Northlands.

Demand function for Joe's golf course is:

P = 160 - 2q

P = $20, q = 50

160 - 2 (50) = 60

Consumer surplus = 0.5 * equilibrium quantity

Consumer Surplus for Joe is; 0.5 * 50 (160 - 20) = $3500

If MR = MC then demand function will become:

160 - 4q

If q = 25 then

160 - 4 * 25 = 60