IV. Slim City is a town resided by slim people, with no health club in town. LA Fatness has estimated that the annual demand for their Fatness Club in this town to be Q = 160 - P. Every Club member has a marginal cost of $40, and the annual fixed cost of the business is $500 (assume a linear cost function). 1. LA Fatness starts the first Fatness Club in town. What is the optimum price and membership quantity? 2. What is the profit of the business at the optimum solution? 3- Observing the potential for profit, Twenty-Eight-Hours Club (T-E-H Club), a competitor of the LA Fatness, enters the market. T-E-H Club has the same marginal and fixed cost structure as of the LA Fatness and provides a homogeneous service. What is the optimum quantity for the T-E-H Club?
IV. Slim City is a town resided by slim people, with no health club in town. LA Fatness has estimated that the annual demand for their Fatness Club in this town to be Q = 160 - P. Every Club member has a marginal cost of $40, and the annual fixed cost of the business is $500 (assume a linear cost function). 1. LA Fatness starts the first Fatness Club in town. What is the optimum price and membership quantity? 2. What is the profit of the business at the optimum solution? 3- Observing the potential for profit, Twenty-Eight-Hours Club (T-E-H Club), a competitor of the LA Fatness, enters the market. T-E-H Club has the same marginal and fixed cost structure as of the LA Fatness and provides a homogeneous service. What is the optimum quantity for the T-E-H Club?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:IV. Slim City is a town resided by slim people, with no health club in town. LA Fatness has estimated that the
annual demand for their Fatness Club in this town to be Q = 160 - P. Every Club member has a marginal cost of
$40, and the annual fixed cost of the business is $500 (assume a linear cost function).
1. LA Fatness starts the first Fatness Club in town. What is the optimum price and membership quantity?
2. What is the profit of the business at the optimum solution?
3- Observing the potential for profit, Twenty-Eight-Hours Club (T-E-H Club), a competitor of the LA Fatness,
enters the market. T-E-H Club has the same marginal and fixed cost structure as of the LA Fatness and provides a
homogeneous service. is the optimum quantity for the T-E-H Club?
4- What will be the price in market after T-E-H Club enters the market?
Styles Pane
5- Suppose LA Fatness and T-E-H Club continue non-cooperative profit-maximizing strategies in market. Find the
reaction function of the LA Fatness and the T-E-H Clubs.
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