ch11_p1 - and court fees (assume 52 weeks per year) to...

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11_1. As the owner of the only tennis club in an isolated wealthy community, you must  decide on membership dues and fees for court time.  There are two types of tennis players.  “Serious” players have demand  Q 1  = 10 - P  where Q 1   is court hours per week and P is the fee per hour for each individual player.  There are also “occasional” players with demand  Q 2  = 4 - (1/4)P.   Assume that there are 1,000 players of each type.  Because you have plenty of courts, the  marginal cost of court time is zero.  You have fixed costs of $10,000 per week.  Serious and  occasional players look alike, so you must charge them the same prices. a. Suppose   that   to   maintain   a   “professional”   atmosphere,   you   want   to   limit  membership to serious players.  How should you set the  annual  membership dues 
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Unformatted text preview: and court fees (assume 52 weeks per year) to maximize profits, keeping in mind the constraint that only serious players choose to join? What would profits be (per week)? b. A friend tells you that you could make greater profits by encouraging both types of players to join. Is the friend right? What annual dues and court fees would maximize weekly profits? What would these profits be? c. Suppose that over the years young, upwardly mobile professionals move to your community, all of whom are serious players. You believe there are now 3,000 serious players and 1,000 occasional players. Would it still be profitable to cater to the occasional player? What would be the profit-maximizing annual dues and court fees? What would profits be per week?...
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This note was uploaded on 12/28/2009 for the course ECON 120 taught by Professor Walsh during the Fall '09 term at University of Illinois, Urbana Champaign.

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