Question

A VR Game Centre (CCVR Centre) considers adopting a ‘pay-per-game’ charging model to exploit all potential gain from the customers. Assuming that there is no fixed cost and marginal cost of operation per game and the following table shows the demand schedule of a ‘typical’ customers on its games.

Price($) 90 80 70 60 50 40 30 20 10 0 Games 1 2 3 4 5 6 7 8 9 10

As a new appointed manager of CCVR Centre, your boss asks you to provide a recommendation on the ‘pay-per-game’ charging model. In your recommendation, besides providing a conclusion on whether your company can capture all potential gain, you are also required to provide the figures of the marginal benefit, marginal revenue, total benefit and total revenue on each quantity a typical customer under the pay-per-ride charging model, the profit-maximizing price and quantity and profit your company could earn per typical customer.

Answer 1

The following table captures the workings and the conclusion required in the question.

Q (games)	Price (P)	Total Revenue (TR=P*Q)	Marginal Revenue	Total Cost	Marginal Cost	Total Profit (TR - TC)	Marginal Profit (MR-MC)
1	90	90	90	0	0	90	90
2	80	160	70	0	0	160	70
3	70	210	50	0	0	210	50
4	60	240	30	0	0	240	30
5	50	250	10	0	0	250	10
6	40	240	-10	0	0	240	-10
7	30	210	-30	0	0	210	-30
8	20	160	-50	0	0	160	-50
9	10	90	-70	0	0	90	-70
10	0	0	-90	0	0	0	-90

The rule is that profit is maximized where MR = MC. In this case since MC=0, we need to look for the point wehre MR=0. That point is Q=5 and P=50, where TR=250 and profit = 250. The table also shows the other relevant data on this such as MR, Marginal Profit, etc.