Question
A local Pilates studio recently began offering a monthly subscription service for its patrons. Suppose a particular patron at this studio has the following willingness-to-pay
A local Pilates studio recently began offering a monthly subscription service for its patrons.
Suppose a particular patron at this studio has the following willingness-to-pay schedule, per session.
Session | Willingness to Pay |
---|---|
1st | $70 |
2nd | $60 |
3rd | $50 |
4th | $40 |
5th | $30 |
6th | $20 |
Suppose this consumer would not demand any more sessions, even for free. Also assume that the marginal cost to the studio, per session, is constant at $10.
At a price of $65.00 per session, the number of sessions demanded by this consumer would be
. At this price and quantity, consumer surplus is
and producer surplus is
.
Suppose the studio has devised a new pricing scheme for consumers who demand more than 1 session. This pricing scheme is a subscription service, whereby consumers can pay a flat fee of $216.00 and can have up to 6 sessions total.
Using this subscription pricing model, this consumer would demand sessions. Under this scenario, consumer surplus is
and producer surplus is
. (Hint: For consumer surplus, consider how much total value the consumer places on all sessions, versus the total price paid.)
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