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. (a) 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. (b) How many rounds of golf will Joe play per year (calculate the value of Q*)? Please explain. (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.
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.
(a) 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.
(b) How many rounds of golf will Joe play per year (calculate the value of Q*)? Please explain.
(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.
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