Question: Consider a person whose demand curve for use of a swimming pool is given by

P = 80 - 5 Q

where Q = number of days used per year. Assume that this pool is owned by a monopolist whose total annual cost of providing pool use to the individual is

C = 100+5 Q.

1. First, assume that the monopolist charges a uniform price per day for the use of the pool. What is the monopolist’s profit-maximizing price and quantity?
2. Now suppose that the monopolist offers the person a pricing schedule called a two-part tariff whereby the consumer pays an annual membership fee E and a price per unit P such that the person’s total payment is
   T = E + P Q, if Q > 0
   and zero otherwise.
   Compute the monopolist's profit-maximizing output Q, membership fee E, and price per unit P.
3. Under which pricing schedule (A or B) does the individual choose greater pool use? Please explain. Which pricing scheme (A or B) yields greater profits to the monopolist? Please show and explain.

Price: $2.99

Solution: The downloadable solution consists of 2 pages
Deliverable: Word Document