TION 8 figure describes the demand and cost information for the only hot yoga st
ID: 1164617 • Letter: T
Question
TION 8 figure describes the demand and cost information for the only hot yoga studlo in Cobb County. Price 120 20 Marginal cost $20, no fixed costs Inverse demand: P(Q) 120-Q 120 Quantity 22. Suppose the yoga studio is unable to price discrimi inate, so instead they operate at the profit maximizing (uniform) price and quantity, how much profit will they earn? 23. Suppose the yoga studio engages in 1' degree price discrimination, how much profit will they earn? uppose instead that the studio wants to implement a two-part tariff, where they charge a membership fee of m for ccess to the studio and a per class price of Pe 24, what type of price discrimination is this: 1st degree, 2nd degree or 3rd degree? 25. Determine the optimal membership fee, m, and per class price, PExplanation / Answer
22)
MC = 20
P = 120 –Q
TR = 120Q – Q^2
MR = 120 – 2Q
Equilibrium:
120 – 2Q = 20
2Q = 100
Q = 100/2
= 50
P = 120 – 50
= $ 70
23)
First Degree price discrimination:
P = MC
20 = 120 –Q
Q = 120
P = 20
Total Surplus = .5(120 -20) (100)
= .5 (100) (100)
= 5.,000
Profit = $ 5000
24)
It is similar to the first degree price discrimination.
25)
Optimal member fee shall be equal to the Consumer Surplus, Hence it is =$ 5,000
Price shall be same as prevails perfectly competitive market =$ 20
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