An econometrician hired to analyse a local golf course has determined that there are two types of golfers, the regular and the occasional. The annual demand for games from regular players is given by QH = 24 – 0.3P, where P is the price of a round of golf. On the other hand, the annual demand for occasional items is given by QO = 10 – 0.1P. The marginal cost and the average total cost per item are equal to €20. a) If you could distinguish between regular and casual players, what price would be set for each type? How many games would each type of player play? How much profit could the golf course generate? Represent graphically. b) As an alternative to the discrimination of third degree prices, those in charge consider a double tranche rate according to which the members can play as many games as they wish at a price of € 20 per game. How much profit will the golf course generate if it charges all players the same annual fee for becoming a member of the club? What if you set a differentiated quota for each type of player? From the point of view of social welfare, which of the two options (same quota or differentiated quotas) would be preferable? Represent graphically. c) The field managers admit to having difficulties in distinguishing the usual players from the occasional ones so they decide not to charge the fee and set a single price for all players. Should they k
Exercise 4.6
An econometrician hired to analyse a local golf course has determined that there are two types of golfers, the regular and the occasional. The annual demand for games from regular players is given by QH = 24 – 0.3P, where P is the price of a round of golf. On the other hand, the annual demand for occasional items is given by QO = 10 – 0.1P. The marginal cost and the
a) If you could distinguish between regular and casual players, what price would be set for each type? How many games would each type of player play? How much profit could the golf course generate? Represent graphically.
b) As an alternative to the discrimination of third degree prices, those in charge consider a double tranche rate according to which the members can play as many games as they wish at a price of € 20 per game. How much profit will the golf course generate if it charges all players the same annual fee for becoming a member of the club? What if you set a differentiated quota for each type of player? From the point of view of social welfare, which of the two options (same quota or differentiated quotas) would be preferable? Represent graphically.
c) The field managers admit to having difficulties in distinguishing the usual players from the occasional ones so they decide not to charge the fee and set a single price for all players. Should they keep the price of €20 per item or, alternatively, set the price that a non-discriminatory monopolist would set? What would be the irrecoverable loss of efficiency that would be generated in the latter case? Represent graphically
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