Question

8. In the past few years, a few new "private garage and track" facilities have opened in various places across the U.S. For example, in Michigan, the M1 Concourse (Links to an external site.) facility opened recently opened.

At the basic level, these facilities charge consumers an annual membership fee and allow them to have a dedicated garage space to store their car. (Usually a hot rod or track car like a Corvette, Porsche, or Ferrari.) Members then also have access to a track where they can race their car.

Suppose that you are the pricing director at one of these facilities and you're trying to figure out how much to charge, both for the annual membership fee and for each hour of track time that a member uses.

Suppose you know that the market of potential members can be divided into two groups: die-hards and enthusiasts. Each "die-hard" consumer has an annual demand for track time that can be given by Q = 130 - P. Each "enthusiast" consumer has an annual demand for track time that can be given by Q = 100 - P. In both equations P is the price per hour of track time and Q is the number of hours of track time demanded per year.

The facility has fixed costs, and the marginal cost of each hour of track time used is only $10.

Suppose that you could distinguish which group each potential member was in, and that you could set (and maintain) a different pricing scheme for each consumer group. Your goal is to maximize the facility's annual profits.

• What price, per-hour, would you set for the die-hard consumers?
  (a) $_______________ per hour
• What annual membership fee would you set for the die-hard consumers?
  (b) $_______________ per year
• What price, per-hour, would you set for the enthusiast consumers?
  (c) $ ______________ per hour
• What annual membership fee would you set for the enthusiast consumers?
  (d) $ ______________ per year

Answer 1

a) $60

b) $4200

c) $45

d) $2475picture 3 has the d. Part solution.