Economics problems:
1. (Problem#1) Some golf clubs charge an up-front fee to join and a per-game charge for their members. Others do not charge a membership fee but charge a higher per-game fee for services. Consider clubs in two different locations. One is located in a suburban area where the residents tend to be of similar age, income, and occupation. The other is in the city with a more diverse population.
a. Which of the locations is more likely to charge a membership fee?
b. Suppose for the suburban club, each one of their customers has a demand for golf games represented by P = 100-3Q. The marginal cost of providing service for one game is $10. Devise a two-part tariff pricing strategy that will exhaust all consumer surpluses.
2. (Problem#2) Wet-n-Wild Indoor Water Park offers family fun year-round in the Northstar state to locals and out-of-state visitors to the nearby Mall of America. The demand for day-passes to the water park for each market segment is independent of the other market segment. The marginal cost of providing service to each visitor is $5 per day. Suppose the daily demand curves for the two market segments are:
Locals: QL=3000-200P or P = 15-0.005QL
Out-of-town: QO=3000-100P or P = 30-0.01QO
a. If Wet-n-Wild Indoor Water Park charges one price to all visitors, what is the profit maximizing price? How many day-passes will be sold per day?
b. If Wet-n-Wild Indoor Water Park charges one price to locals, what is the profit maximizing price for locals? How many day-passes will be sold per day to locals?
c. If Wet-n-Wild Indoor Water Park charges one price to out-of-towners, what is the profit maximizing price for out-of-town guests? How many day-passes will be sold per day to out-of-town guests?
d. Compare the prices from uniform pricing to the prices from price discrimination. Explain how the company would implement the price discrimination.
3. (Problem#3) Assume the industry demand for a product is P = 1000 - 20Q. Assume that the marginal cost of the product is $10 per unit.
a. What price and output will occur under pure competition? What price and output will occur under pure monopoly?
b. Draw a graph that shows the lost gains from trade that result from having a monopoly.
4. (Problem#4) As a result of strikes in Canada the world price of nickel rose by 20 percent in December. Over the same period, the quantity demanded of nickel decreased from 10,000,000 to 8,500,000 pounds worldwide. The world price of nickel was 70 cents per pound before the strikes.
a. Show graphically the effect of Canadian strikes on the market for nickel.
b. Given the information above, what's the price elasticity of the world demand for nickel over the relevant price range?
c. Did the total expenditure for nickel increase, decrease, or remain constant after the strikes? How is this consistent with your answers to part (a) and (b)? Explain clearly and concisely.