Question
Pole Position , a retailer at Destiny Mall, has a variable cost of $5 per lap driven. It has identified two segments of customers: Hard-Core
Pole Position, a retailer at Destiny Mall, has a variable cost of $5 per lap driven. It has identified two segments of customers: Hard-Core drivers and Just-For-Fun drivers. For simplicity, throughout this problem, assume there is exactly one customer in each of the two segments. Market research has revealed how each segment values the experience, depending on how many laps are raced:
# of Laps | Hard-Core Total Benefit ($) | Just-For-Fun Total Benefit ($) |
1 | $15 | $25 |
2 | $29 | $37 |
3 | $42 | $43 |
4 | $54 | $48 |
5 | $65 | $50 |
6 | $74 | $51 |
7 | $81 | $50 |
8 | $87 | $40 |
9 | $90 | $20 |
10 | $89 | $10 |
6. Suppose Pole Position only sells an unlimited package in which a customer can drive as many laps as he or she wishes.
- If the Hard-Core driver purchased this package, how many laps would she drive and what is the most shed be willing to pay for this package?
- If the Just-For-Fun driver purchased this package, how many laps would he drive and what is the most hed be willing to pay for this package?
- Suppose Pole Position sets the price of the unlimited package equal to the WTP you found in 6a. How much profit would Pole Position earn? Hint: Only the Hard-Core driver would be willing to purchase. Make sure you account for costs.
- Suppose Pole Position sets the price of the unlimited package equal to the WTP you found in 6b. How much profit would Pole Position earn? Hint: Both drivers would be willing to purchase at this price.
- What price for the unlimited package generates the highest profit for Pole Position? Hint: You just need to compare the profits in 6c and 6d.
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