Question
For questions 1 - 4 use the following information. Songs for Kids is the sole provider of singing lessons for kids in a town. From
For questions 1 - 4 use the following information. Songs for Kids is the sole provider of singing lessons for kids in a town. From their experience and data, Songs for Kids believes that the firm faces two types of customers: Type A customers who are serious singers, and Type B customers who are just enjoying singing for the fun of it. Songs for Kids offers 15 minute, 30 minute, 45 minute, and 60 minute lessons (kids can't concentrate for longer than that). The following table indicates the willingness to pay and group size of each customer type.
WTP
15 min | 30 min | 45 min | 60 min | Group Size | |
Type A | $50 | $70 | $85 | $90 | 100 |
Type B | $26 | $34 | $40 | $40 | 100 |
The following table indicates the marginal willingness to pay (MWTP) values for incremental 15 minutes of lesson time and the group size of each customer type: MWTP
1 | 2 | 3 | 4 | Group Size | |
Type A | $50 | $20 | $15 | $5 | 100 |
Type B | $26 | $8 | $6 | $0 | 100 |
All costs can be ignored (the instructors are aspiring singers and are willing to work for next to nothing, so assume the marginal cost is zero). Thus, Songs for Kids' revenue is also its profit. As always when setting prices, assume that any customer who derives the same consumer surplus from multiple options will behave as the seller desires.
3. The question below relates to the optimal price menu. You may find the following table useful when answering:
1 | 2 | 3 | 4 | Group Size | |
Type A | $50 | $20 | $15 | $5 | 100 |
Type B | $26 | $8 | $6 | $0 | 100 |
The optimal price menu is: A. 15-minute lesson for $26; 60-minute lesson for $66 B. 30-minute lesson for $34; 60-minute lesson for $66 C. 15-minute lesson for $50; 45-minute lesson for $61 D. 30-minute lesson for $70; 45-minute lesson for $85 E. None of the above is the optimal price menu
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