Question

Kirby loves R&B Dawg Premium Ice Cream pints. His Inv. demand: P = 40 - .25Q (for a year)

R&B Dawg Ice Cream sells it for $15 a pint regularly. They offer Kirby a chance to join the "Premium Members" club. Members get a price of $4 per pint but they have to pay an annual club fee of $1000.

Assume MC=AC=$1

1. Which option would Kirby choose, pay the regular price or join the club? Explain.

2. You know Kirby's demand function while "R&B Dawg Ice Cream" does not. Is offering the club option a good idea for them? (Profit) Explain.

Please show all work

Answer 1