Management of AG Travel and Tour has identified two
groups of individuals that
would be interested in the vacation package consisting of room and
board and/or
entertainment. The maximum amount that group 1 is willing to pay
for room and
board is GHC 2500 and for entertainment is GHC 500. For group 2,
the maximum
amount they are willing to pay for room and board is GHC 1800 and
for
entertainment is GHC 750. Although AG Travel and Tour is not able
to identify
members of either group, it does know that each group values the
components of
the package differently. Assuming there are an equal number of
members in each
group and that the total membership in each group is a single
individual. If the
marginal cost of providing the service (room and board and/or
entertainment) to
each group is GHC 1000.
i. How much will the hotel charge members of each group for the
vacation
package if it could identify the members in each group?
ii. How much will the profit for AG Travel and Tour be?
iii. Since AG Travel and Tour is not able to identify members of
each group,
what price should it charge for each product?
iv. What will be the profit for AG Travel and Tour in the case of
(iii) above?
v. If AG Travel and Tour wants to charge a package price, what is
the highest
price it can charge?
vi. What profit will AG Travel and Tour make if it charges the
package price
found in (v) above? (3 mark
| Answer to iii: | |||
| Charge to Group 1 | = | 2500GHC + 500GHC | |
| = | 3000 GHC | ||
| Charge to Group 2 | = | 1800GHC + 750GHC | |
| = | 2550 GHC | ||
| Answer to iv: | |||
| Profit of AG Travel & Tour | |||
| Group 1 | Group 2 | ||
| Charges | 3000 | 2550 | |
| Less: Marginal Cost | 1000 | 1000 | |
| Profit | 2000 | 1550 | |
| Total Profit | 3550 GHC | ||
| Answer to v: | |||
| Highest Price Can Charge | |||
| For Room & Board | = | 2500GHC | |
| For Entertainment | = | 750GHC | |
| 3250GHC | |||
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