03 Jun Question Economics problems: 1. (Problem#1) Some golf clubs charge an up-fron
Question
Economics problems:
1. (Problem#1) Some golf clubs charge an up-front fee to join and a per-game charge for their members.
Others do not charge a membership fee but charge a higher per-game fee for services. Consider clubs in two
different locations. One is located in a suburban area where the residents tend to be of similar age, income,
and occupation. The other is in the city with a more diverse population.
a. Which of the locations is more likely to charge a membership fee?
b. Suppose for the suburban club, each one of their customers has a demand for golf games represented
by P = 100-3Q. The marginal cost of providing service for one game is $10. Devise a two-part tariff
pricing strategy that will exhaust all consumer surpluses.
2. (Problem#2) Wet-n-Wild Indoor Water Park offers family fun year-round in the Northstar state to locals and
out-of-state visitors to the nearby Mall of America. The demand for day-passes to the water park for each
market segment is independent of the other market segment. The marginal cost of providing service to each
visitor is $5 per day. Suppose the daily demand curves for the two market segments are:
Locals: QL=3000-200P
or P = 15-0.005QL
Out-of-town: QO=3000-100P or
P = 30-0.01QO
a. If Wet-n-Wild Indoor Water Park charges one price to all visitors, what is the profit maximizing price?
How many day-passes will be sold per day?
b. If Wet-n-Wild Indoor Water Park charges one price to locals, what is the profit maximizing price for
locals? How many day-passes will be sold per day to locals?
c. If Wet-n-Wild Indoor Water Park charges one price to out-of-towners, what is the profit maximizing price
for out-of-town guests? How many day-passes will be sold per day to out-of-town guests?
d. Compare the prices from uniform pricing to the prices from price discrimination. Explain how the
company would implement the price discrimination.
3. (Problem#3) Assume the industry demand for a product is P = 1000 20Q. Assume that the marginal cost of
the product is $10 per unit.
a. What price and output will occur under pure competition? What price and output will occur under
pure monopoly?
b. Draw a graph that shows the lost gains from trade that result from having a monopoly.
4. (Problem#4) As a result of strikes in Canada the world price of nickel rose by 20 percent in December. Over
the same period, the quantity demanded of nickel decreased from 10,000,000 to 8,500,000 pounds
worldwide. The world price of nickel was 70 cents per pound before the strikes.
a. Show graphically the effect of Canadian strikes on the market for nickel.
b. Given the information above, whats the price elasticity of the world demand for nickel over the
relevant price range?
c.
Did the total expenditure for nickel increase, decrease, or remain constant after the strikes? How is this
consistent with your answers to part (a) and (b)? Explain clearly and concisely.
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