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    Two part pricing - annual membership and rental

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    A local surf store estimates that their average customer's demand per year is P = 3.5 - 0.5Q, and knows that the marginal cost of each rental is $0.5.

    a- How much should the store charge for an annual membership in order to extract all the consumer surplus using an optimal two-part pricing strategy?

    b- How much should the store charge for each rental if it uses an optimal two-part pricing strategy?

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    Solution Preview

    For a two part tariff we have we set the price as equl to MC. so we have P=MC=$0.5
    to calculate value of Q, we ...

    Solution Summary

    This post illustrates how to calculate the two part pricing for a local surf store in order to extract as much consumer surplus as possible.