Question

The demand for health club services is Q = 100 – 2P, and the marginal cost of providing these services is MC = –110 + 2Q. If a two-part tariff pricing system is used, what is the optimal price and quantity combination?

Question 25 options:

	P = 18 and Q = 64.
	P = 199 and Q = 52.
	P = 26 and Q = 162.
	P = 162 and Q = 26.
	None of the above.

Managers may make decisions that are not consistent with the goals of stockholders. This is referred to as the       problem.

Question 1 options:

	principal–agent
	economic disincentive
	incentive–compromise
	efficiency–inefficiency
	equilibrium

Answer 1

(1)

A monopoly firm who practices two part pricing strategy produces at the point where P = MC

=>P = MC
=> P =-110 + 2Q

And

Q=100 - 2P

=> Q = 100 - 2(-110 + 2Q)

=> Q = 100 +220 -4Q

=> Q +4Q = 320

=> 5Q = 320

=> Q = 320 / 5

=> Q = 64

and

P = -110 + 2Q

=> P = -110 + 2(64)

=> P = 18

Answer: Option (A)

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(2) Managers may make decisions that are not consistent with the goals of stockholders. This is referred to as the problem of principal agent

Here stockholders are principal and managers are agents.

The principal agent problem occurs when principal can't observe the effort made by managers.

Answer: Option (A)