Optimal Pricing and Consumer Surplus at a Gym
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Suppose that the monthly individual demand of hours spent in a gym is D: Q =50-P and for the gym the total cost of a customer is TC=10.
Find the optimal price and quantity with standard pricing. Which is the per-customer profit for the gym? What is the consumer surplus?
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Solution Summary
Given the monthly demand curve for hours spent in a gym, this solution shows how to determine the gym's profit-maximizing price and calculate the consumer surplus at that price.
Solution Preview
The gym maximizes its profits at the level of output where Marginal Revenue (MR) = Marginal Cost (MC). MC is the cost of serving an additional customer. In this case we are told that MC = 10. We derive MR from the Demand ...
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