1. Peloton Company

The sales of home exercise equipment increased exponentially during the Covid Crisis. Membership at popular Fitness businesses such as 24-hour Fitness and Planet Fitness and local Fitness clubs have suffered resulting in revenue losses and bankruptcies of small enterprises.

Peloton is widely considered to be the industry leader in the connected fitness space, and offers some of the most immersive workout experiences available. It manufactures exercise bicycles and sells them under conditions of monopolistic competition. The owner of the company has estimated its demand function as P = 2575 - 5Q, where P is in dollars and Q is in number of Treadmills sold per week. The company believes its weekly expenses vary with output according to the equation:

TC = 25,000 + 25Q - 5Q² + 1/3 Q³.

Based on these equations and using concepts from Chapters 4, 7 and 9:

1. Determine the firm's short-run profit-maximizing price and output rate.
2. How much profit will the firm earn at this price and output rate?
3. Due to supply chains problem associated with Covid, Peloton total fixed costs rise by 20%. Calculate the impact upon the firm's price, output and profits. How will you account for these results? Explain
4. Given the current environment where restrictions are being relaxed, what strategies can fitness centers use regain membership and return to the pre-Covid levels? Can they expect to reach those levels? Why or Why not?