Question

Question One

Management of AG Travel and Tour has identified two groups of individuals that would be interested in the vacation package consisting of room and board and/or entertainment. The maximum amount that group 1 is willing to pay for room and board is GHC 2500 and for entertainment is GHC 500. For group 2, the maximum amount they are willing to pay for room and board is GHC 1800 and for entertainment is GHC 750. Although AG Travel and Tour is not able to identify members of either group, it does know that each group values the components of the package differently. Assuming there are an equal number of members in each group and that the total membership in each group is a single individual. If the marginal cost of providing the service (room and board and/or entertainment) to each group is GHC 1000.

i. How much will the hotel charge members of each group for the vacation package if it could identify the members in each group?

ii. How much will the profit for AG Travel and Tour be?

iii. Since AG Travel and Tour is not able to identify members of each group, what price should it charge for each product?

iv. What will be the profit for AG Travel and Tour in the case of (iii) above?

v. If AG Travel and Tour wants to charge a package price, what is the highest price it can charge?

vi. What profit will AG Travel and Tour make if it charges the package price found in (v) above?

Answer 1

i). If the hotel charges memebers of each group for the vacation package it should be of the below data. Since there is no clear communication of the number of people in each group lets assume that each group comprises of 5 people then the billing should be

Group 1

800 per person X 5 (People) = 4000

Group 2

710 per person X 5 (People) = 3550

This includes a margin rate of 1000 per group

ii. How much will the profit for AG Travel and Tour be?

The profit for AG Travels would be 2450

Group 1 = 800/Person
Group 2 = 710/Person

Lets assume 710 as actual price in Group 2 for both Group 1 as well with 90 to be the profit in Group 2 and adding Margin 1000 to it for 5 person would be resulting in 2450.

iii. Since AG Travel and Tour is not able to identify members of each group,
what price should it charge for each product?

Since unable to identify the members the price for each product for groups are below listed

Group 1 -   4000
Group 2 -   3550

iv. What will be the profit for AG Travel and Tour in the case of (iii) above?

2450

v. If AG Travel and Tour wants to charge a package price, what is the highest
price it can charge?

4450

vi. What profit will AG Travel and Tour make if it charges the package price
found in (v) above?

2900