Consider the following demand for rounds in a golf club: Qd = 300 - 5p = p = 60 – 0.2Q %3D Assume the marginal cost is constant and equal to $50 per round for the club, which is the de fact monopolist in this market. a. Assume the club is allowed to charge an annual membership (or entry fee) on top of the price per round. How much the club would charge for this membership fee? b. Assume consumers have enough income to afford the membership and buy as many rounds as they want. How many rounds will they purchase after paying the annual membership? What price will they pay for each round?
Consider the following demand for rounds in a golf club: Qd = 300 - 5p = p = 60 – 0.2Q %3D Assume the marginal cost is constant and equal to $50 per round for the club, which is the de fact monopolist in this market. a. Assume the club is allowed to charge an annual membership (or entry fee) on top of the price per round. How much the club would charge for this membership fee? b. Assume consumers have enough income to afford the membership and buy as many rounds as they want. How many rounds will they purchase after paying the annual membership? What price will they pay for each round?
Chapter8: Monopoly
Section: Chapter Questions
Problem 3SQP
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Transcribed Image Text:Consider the following demand for rounds in a golf club:
Qd = 300 – 5p =p = 60 – 0.2Q
%3D
Assume the marginal cost is constant and equal to $50 per round for the club, which is the de
fact monopolist in this market.
a. Assume the club is allowed to charge an annual membership (or entry fee) on top of the price
per round. How much the club would charge for this membership fee?
b. Assume consumers have enough income to afford the membership and buy as many rounds
as they want. How many rounds will they purchase after paying the annual membership? What
price will they pay for each round?
Transcribed Image Text:b. Assume consumers have enough income to afford the membership and buy as many rounds
as they want. How many rounds will they purchase after paying the annual membership? What
price will they pay for each round?
c. Suppose the club decides to not charge an annual membership. Instead, it will use its monopoly
power to lower the quantity and drive the price up. How many rounds will the club sell to each
customer and for what price? Hint: Solve the profit-maximization problem of the monopolist to
find this quantity and price.
d. Do the welfare analysis and compare the consumer and the producer surplus with the two-
part pricing and with the single price. Which pricing strategy is better for the golf club? Why?
e. Still using the results from your welfare analysis, discuss which situation is best for consumers
and which is the most efficient. Why?
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