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Advanced Pricing Techniques - Black Diamond

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Answer the following questions based on the following situation:

Black Diamond Tennis & Golf Club offers golf and tennis memberships to the residents of Black Diamond, Ohio, in which there are two types of families: golf-oriented families and tennis-oriented families. There are 100 golf-oriented families and 100 tennis-oriented families in Black Diamond. Demand forecasts at prices for golf and tennis memberships by family type are given below. There is no way to identify family types for pricing purposes, and all costs are fixed so that maximizing total revenue is equivalent to maximizing profit.

Demand Prices (willingness to pay) for Golf and Tennis Memberships

Type of family Tennis membership only Golf membership only
Tennis-oriented $150 $50
Golf-oriented $75 $200

1-If Black Diamond Tennis & Golf Club plans to offer golf and tennis memberships separately, what prices should be charged for each kind of membership if Berkely wishes to maximize profit?
Answer

Charge $75 for tennis memberships and $50 for golf memberships.
Charge $75 for tennis memberships and $200 for golf memberships.
Charge $150 for tennis memberships and $200 for golf memberships.
Charge $150 for tennis memberships and $50 for golf memberships.
either b or c

2-How much total revenue can be generated each month under the pricing plan in the previous question?
Answer

$20,000
$25,000
$35,000
$70,000
$95,000

3-The conditions are right for bundle pricing to increase profit at Black Diamond Tennis & Golf Club because

Answer

Demand prices for golf are greater than demand prices for tennis.
Demand prices differ across family types for tennis and golf memberships.
Demand prices are negatively correlated.
Demand prices are positively correlated.
Both b and c

4-What is the optimal price to charge for a bundled tennis and golf and tennis membership?
Answer

$150
$200
$225
$250
$275

5-How much revenue will bundle price in the previous question produce for Black Diamond Tennis & Golf Club?

Answer
$25,000
$27,500
$35,000
$40,000

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Solution Preview

1-If Black Diamond Tennis & Golf Club plans to offer golf and tennis memberships separately, what prices should be charged for each kind of membership if Berkely wishes to maximize profit?

A. Charge $75 for tennis memberships and $50 for golf memberships.
Under this scenario, Club will be able to sell 200 memberships of tennis and 200 memberships of golf.
Total revenue=75*200+50*200 =$25000

B. Charge $75 for tennis memberships and $200 for golf memberships.
Under this scenario, Club will be able to sell 200 memberships of tennis and ...

Solution Summary

Solutions provide step by step methodology to determine the optimal price levels by using advanced pricing techniques.

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