Question

Tar Heel Travel Agency has purchased 5,000 tickets to the “Almost-A-Bowl” game which will host the Tarheels in December.   The company’s trip planners are suggesting three levels of service for their bowl travel packages: Premium, Value, and Cheap-Cheap. They have determined the following potential customer segments are interested in purchasing these packages:

·      Die-Hard Fans (1,500 maximum travelers)

·      Fair Weather Fans (3,000 maximum travelers)

·      Students (500 maximum travelers)

Further, assume for simplicity that:

·      Maximum willingness to pay (price) for each segment and package marginal costs are presented in table below.

·      There are no additional costs of market development.

·      There are no fixed costs incurred for setting up each package class.

·      Assume that segments that receive zero surplus, still will buy the ticket.

·      If customers get the same surplus from two fare classes, they will buy the higher class of service.

The trip planners are considering three levels of service for their bowl travel packages as follows:

	Premium		Value		Cheap-Cheap
	Marginal Cost = $4,000		Marginal Cost = $1,250		Marginal Cost = $200
	Your Price: $_________		Your Price: $_________		Your Price: $_________
Segments	Maximum willingness to pay	Surplus	Maximum willingness to pay	Surplus	Maximum willingness to pay	Surplus
Die-Hard	$10,000		$4,000		$750
Fair Weather	$5,500		$3,500		$550
Students	$4,400		$2,000		$500

a) What is the best price point for each class of ticket in order to maximize revenue?

Optimal Price Point Premium Package to maximize revenue: $     ____   .

Maximum Revenue for Premium Package: $      ____     Million

Optimal Price Point for Value Package to maximize revenue: $ ____      .

Maximum Revenue for Value Package: $       ____    Million

Optimal Price Point for Cheap-Cheap Package to maximize revenue: $ ______      .

Maximum Revenue for Cheap-Cheap Package: $       ____    Million

b) What is the best price point for each class of ticket in order to maximize profit (package costs are provided in the table above)?

Optimal Price Point Premium Package to maximize profit: $     ____   .

Maximum Profit for Premium Package: $      ____     Million

Optimal Price Point for Value Package to maximize profit: $ ____      .

Maximum Profit for Value Package: $       ____    Million

Optimal Price Point for Cheap-Cheap Package to maximize profit: $ ______      .

Maximum Profit for Cheap-Cheap Package: $       ____    Million

c) Without making any calculations, what suggestions do you have to allow the travel agency to increase its profits over what you presented in part (b)? What do you have to be concerned about when determining the correct pricing for the various options?

Answer 1

			MAXIMUM	OPTIMAL		MAXIMUM	OPTIMAL		MAXIMUM	OPTIMAL
			Die hard	Die hard		Fair	Fair		Student	Student
		marginal cost	1500	1500		3000	3000		500	500
	Premium	4000	10000	6000		5500	1500		4400	400
	value	1250	4000	2750		3500	2250		2000	750
	cheap-cheap	200	750	550		550	350		500	300
	Premium		15,000,000	9,000,000		16,500,000	4,500,000		2,200,000	200,000
	value		6,000,000	4,125,000		10,500,000	6,750,000		1,000,000	375,000
	cheap-cheap		1,125,000	825,000		1,650,000	1,050,000		250,000	150,000
A)	what is the best price point for each class of ticket in order to maximise revenue
1)	Optimal price point premium package to maximise revenue $ 5,500
2)	maximum revenue for premium package : $ 16,500,000
1)	Optimal price point Vaue package to maximise revenue $ 3500
2)	maximum revenue for value package : $ 10,500,000
1)	Optimal price point Cheap -Cheap package to maximise revenue $550
2)	maximum revenue for Cheap-cheap package : $ 1,650,000
B)	what is the best price point for each class of ticket in order to maximise profit $ 10,000
1)	Optimal price point premium package to maximise profit $ 10,000
2)	maximum profit for premium package : $ 9,000,000
1)	Optimal price point Vaue package to maximise profit $ 3500
2)	maximum profit for value package : $ 6,750,000
1)	Optimal price point Cheap -Cheap package to maximise profit $ 550
2)	maximum profit for Cheap-cheap package : $ 1,050,000
1	its pricing should be based on fair weather fans as they bring the optium profits except for premium segment where it should be for die hard travellers
2	the affordability of the travellars needs to be kept in mind before determining the pricing