Suppose you come home from having earned your degree at CSUEB. Your parents own a local chain of fitness clubs that have a great reputation. Your father uses cost-plus pricing, and at the moment he is charging $200 for an annual membership, and is currently selling 800 memberships. Your parents are quite happy with their current markup above average costs You suspect that perhaps they could be doing better and be more profitable. After consulting with the club’s manager, you learn that the cost function for annual memberships is given by c(Q)=1000+20Q+(1/20)Q2 . Further, they tell you that the own price elasticity of demand is approximately -2.5 Are your parents choosing a membership price that is maximizing profit? If not, what would you

Suppose you come home from having earned your degree at CSUEB. Your parents own a local chain of fitness clubs that have a great reputation. Your father uses cost-plus pricing, and at the moment he is charging $200 for an annual membership, and is currently selling 800 memberships. Your parents are quite happy with their current markup above average costs You suspect that perhaps they could be doing better and be more profitable. After consulting with the club’s manager, you learn that the cost function for annual memberships is given by c(Q)=1000+20Q+(1/20)Q2 . Further, they tell you that the own price elasticity of demand is approximately -2.5 Are your parents choosing a membership price that is maximizing profit? If not, what would you

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter14: Monopolistic Competition And Product Differentiation

Section: Chapter Questions

Problem 15P

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