Calculate the profit-maximizing price

Reference no: EM133203640

Assignment:

The Charlotte Squash Club asked you to devise a profit maximizing pricing strategy. In doing so, you can rely on data provided by another area consultant. The data suggest that demand conditions for court time are as follows:

P=105 - 2Q

Where P is the price of one hour of court time and Q is the number of hours of court time an individual player would purchase during the squash season. Charlotte Squash Club has been operating for several decades. Feeling that the club recovered all overhead long ago, the firm considers fixed cost to be zero. Marginal cost is constant $5 per hour.

1. Calculate the profit-maximizing price, output and profit level assuming a per unit charge for each hour of squash played.

2. Calculate the profit-maximizing price, output and profit level assuming that the firm moves to a two-part pricing approach charging a fixed fee plus a price per hour.

3. Which strategy should the firm employ? Explain.

Reference no: EM133203640

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