10. If the golf instructor set a single price to maximize profit, she would earn
ID: 1119424 • Letter: 1
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10. If the golf instructor set a single price to maximize profit, she would earn producer surplus of If she set a price of $120 an hour for the first four hours of instruction and $80 an hour for each hour of instruction beyond four hours, she would earn producer surplus of Price (S) 200 180 160 140 120 100 80 60 40 20 0 10 2 Quantity (hours of golf instruction) a. $480; $960 b. $320; $400 c. $500; $800 d. $320; $120 11. Owners of a bowling alley have determined that the price elasticity of demand for bowling by seniors is -3.0, while the price elasticity of demand for others is -1.8. How much more should others be charged than seniors? a. 6790 b. 50% c. 60% d. 25%Explanation / Answer
10. Profit maximising level of output by charging single price is where the marginal revenue equals the marginal cost.
Price is $120 and output is 4 hours.
Producer surplus is the area above the marginal cost curve and below the price line.
the area of rectangle = length * breadth.
PS = (120-40) * 4
PS = $320.
Now, if $80 per hour is charged thereafter, so new PS = (80-40) * (6-4)
PS = 40*2 = $80.
Total PS for two part pricing is 320 + 80 = $400.
Thus, option B is correct.
11. The % of price charged more should be 1.8/3 or 60%.
The price paid by others is relatively less elastic than the seniors, so others should be charged more.
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