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Managerial Economics: Calculating optimal price and number of lockers rented.

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As manager of Citywide Racquet Club, you must determine the best price to charge for locker rentals. Assume that the (marginal) cost of providing lockers is 0.

The monthly demand for lockers is estimated to be: Q= 100-2P where P is the monthly rental price and Q is the number of lockers rented per month.

a. What price would you charge?
b. How many lockers are rented monthly at this price?
c. Explain why you chose this price.

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Solution Preview

a. What price would you charge?

Q=100-2P
2P=100-Q
P=50-0.5Q
Total Revenue=TR=P*Q=(50-0.5Q)*Q=50Q-0.5Q^2
Marginal Revenue=dTR/dQ=50-Q
Put MR=MC=0 for profit maximization.
50-Q=0
Q=50 units.
P=50-0.5*50=25
Price=$25 ...

Solution Summary

Solution describes the steps to calculate optimal monthly rental price and monthly number of lockers rented.

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