Would spotifys pricing model likely yield

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Reference no: EM133288026

Question 1. The pricing model for iTunes has been to price songs individually. Instead, Spotify opted to offer unlimited song playing for a monthly fee. Would Spotify's pricing model likely yield more profit than pricing songs individually? Explain your answer.

Question 2. Suppose a golf course manager is considering using the two-part pricing to charge identical consumers. Each consumer needs to become a member first. There is also a unit price for using the golf course. Suppose the demand curve of a customer is P = 60 - Q, where Q is the number of times that a customer will use the golf course. The marginal cost is a constant $20. There is no fixed cost. This implies that the total cost function is TC = 20Q, and ATC = $20. The goal of the manager is to maximize the sum of the membership fee and the profit per customer, where profit = (P - ATC)xQ.

Question 2.1 How much should the manager charge a consumer in terms of the membership fee and the unit price? How much is the sum of the membership fee and profit per customer? Justify your answers.

Question 2.2 The goal of the manager remains the same, but the manager is considering charging identical customers a higher membership fee for unlimited visits. In that case, what will be the sum of the membership fee and the profit per customer? Do you think it is a good idea compared to Question 2.1? (You must show calculation.)

Reference no: EM133288026

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