7. (10 points) 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. P $120 $20 demand curve is P = 120-2Q MC-AC Q* (a) How many rounds of golf will Joe play per year (calculate the value of Q*)? Please explain. (b) 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. (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. 8. (10 points) Assume that you live on the second floor of an apartment building and one day you forget to shut off the faucet in your bathtub. The bathtub overflows and floods your apartment and some of the water leaks through the floor and damages the apartment of your downstairs neighbor (the person who lives directly below your apartment. (a) Is the damage to your apartment a negative externality? Please explain. (b) Is the damage to your neighbor's apartment a negative externality? Please explain.
7. (10 points) 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. P $120 $20 demand curve is P = 120-2Q MC-AC Q* (a) How many rounds of golf will Joe play per year (calculate the value of Q*)? Please explain. (b) 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. (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. 8. (10 points) Assume that you live on the second floor of an apartment building and one day you forget to shut off the faucet in your bathtub. The bathtub overflows and floods your apartment and some of the water leaks through the floor and damages the apartment of your downstairs neighbor (the person who lives directly below your apartment. (a) Is the damage to your apartment a negative externality? Please explain. (b) Is the damage to your neighbor's apartment a negative externality? Please explain.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Transcribed Image Text:7. (10 points) 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.
P
$120
$20
demand curve is P = 120-2Q
MC-AC
Q*
(a) How many rounds of golf will Joe play per year (calculate the value of Q*)? Please explain.
(b) 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.
(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.
8. (10 points) Assume that you live on the second floor of an apartment building and one day
you forget to shut off the faucet in your bathtub. The bathtub overflows and floods your
apartment and some of the water leaks through the floor and damages the apartment of your
downstairs neighbor (the person who lives directly below your apartment.
(a) Is the damage to your apartment a negative externality? Please explain.
(b) Is the damage to your neighbor's apartment a negative externality? Please explain.
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