Question

Pamela owns a miniature-golf course. Her weekly fixed costs of operation
are $1000, while her variable costs are 0. Pamela has two types of clients, serious players and
occasional players. There are 100 customers of each type, and the individual weekly demand
functions for miniature golf games are:
Demand serious player: qd = 10 – P
Demand occasional player: qd = 5 – P/2
a) Pamela believes that she will make the most possible profit by catering only to the serious
players. She will price using a two-part tariff, where she will charge a weakly fee for access
to her golf courses and a usage fee per game played of miniature-golf. What access fee and
usage fee will Pamela charge? What will be Pamela’s profit? Why would occasional players
not want to go to Pamela’s golf course, if she charges the fees you found above? (5 points)
b) Borat, a good friend of Pamela, advises her that she probably would increase her
profits by having both types of players in her golf course. Pamela is still restricted to using
the same two-part tariff for everyone. What will be the access fee and the entry fee Pamela
will charge? What is her profit in this case?.

Answer 1

Answers for

Question

a) I disagree with Pamela on her view that she will make the most possible profit by catering only to serious players and i believe in the balacing act of given equal importance to both types of the players.

Answer for b) If Pamela follows Borat's advice, Pamela will make a profit of $3,500.

Description	Serious Players	Occassional Players
Number of Players	100	100
Access fee	7.5	12.5
Usage Fees	10	15
Total Weekly fee per game	17.5	27.5
	1750	2750
Gross Profit	4500
Less: Fixed Operation Costs	1000
Net Profit	3500

1) In the below given table, it is mentioned there are overall 200 players including 100 serious and 100 Occassional.

2) Assuming Access Fee is $7.5 for Serious players per weekly game and $12.5 for Occassional players and Usage Fee is $10 for Serious players per weekly game and $15 for Occassional players.

3) Total fees for 100 serious players will be $1750 and $2750 for 100 occassional players which will make $4,500 overall.

4) So, after the deductions of Fixed Operation Costs of $1000, Pamela will make a profit of $3,500.