Suppose you come home from having earned your degree at CSUEB. Your parents own a local chain of fitness clubs that have a great reputation. Your father uses cost-plus pricing, and at the moment he is charging $200 for an annual membership, and is currently selling 800 memberships. Your parents are quite happy with their current markup above average costs You suspect that perhaps they could be doing better and be more profitable. After consulting with the club’s manager, you learn that the cost function for annual memberships is given by c(Q)=1000+20Q+(1/20)Q2 . Further, they tell you that the own price elasticity of demand is approximately -2.5 Are your parents choosing a membership price that is maximizing profit? If not, what would you
Suppose you come home from having earned your degree at CSUEB. Your parents own a local
chain of fitness clubs that have a great reputation. Your father uses cost-plus pricing, and at the
moment he is charging $200 for an annual membership, and is currently selling 800 memberships.
Your parents are quite happy with their current markup above average costs
You suspect that perhaps they could be doing better and be more profitable. After consulting with the club’s manager, you learn that the cost function for annual memberships is given by c(Q)=1000+20Q+(1/20)Q2 .
Further, they tell you that the own
Are your parents choosing a membership price that is maximizing profit? If not, what would you
suggest – increase the price or reduce the price? Explain
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