Question

Pole Position, a retailer at Destiny Mall, has a variable cost of $5 per lap driven. It has identified two segments of customers: Hard-Core drivers and Just-For-Fun drivers. For simplicity, throughout this problem, assume there is exactly one customer in each of the two segments. Market research has revealed how each segment values the experience, depending on how many laps are raced:

# of Laps	Hard-Core Total Benefit ($)	Just-For-Fun Total Benefit ($)
1	$15	$25
2	$29	$37
3	$42	$43
4	$54	$48
5	$65	$50
6	$74	$51
7	$81	$50
8	$87	$40
9	$90	$20
10	$89	$10

5. Suppose Pole Position had to set the price per lap the same regardless of the type of customer.

1. x
2. x
3. At this price, how many laps would a Just-For-Fun driver purchase?
4. How much profit would Pole Position earn from these sales?
5. x
6. Briefly explain why profit increases or decreases in this scenario.

Answer 1

Hey

The ans. Of the following question is given below as follows

Ans.C).For a hard core driver just having fun, the total profit is maximized when he runs for 6 laps and his total profit received is equal to $ 51. Therefore, a driver just having fun would buy the 3-lap Race A package for $ 42.99 because this package gives you the benefit of $ 43, which is roughly equal to cost and close to your maximum benefit.

Ans.D) So the From the package: Your total income from pole position is $ 42.99 and the total cost of providing a 3-lap race is equal to 3 * $ 5 = $ 15. Therefore, your profit = $ 42.99 - $ 15 = $ 27.99. Similarly, Package B's total pole position revenue equals $ 86.99 and its total cost of providing an 8-lap race equals 8 * $ 5 = $ 40. Therefore, its profit = $ 86 .99 - $ 40 = $ 46.99. So your total profit equals $ 27.99 + 46.99 = $ 74.98

Ans.F) So cannot be answered from the information provided, for this we need prior pricing strategies.

Apologies.

I hope I have served the purpose well.

Thanks.