Question

In the town of Oz, there are two types of tennis players: wizards and imps. Wizards and imps do not socialize, so it would be impossible to start a tennis club that both types would join. Imps have access to credit but a weak demand for tennis as follows.

PI = 30 - QI

where QI refers to the number of games they would play if the price of a game were PI . Because of their access to credit, they would be willing to pay an upfront fee to join the club. Wizards live from paycheck to paycheck and would be willing to pay for each tennis game as they go along. Their demand is

PW = 40 - QW

where QW refers to the number of games they would play if the price of a game were PW. There are an equal number of wizards and imps (for simplicity, assume one of each). The marginal cost of one game of tennis is a constant 2. You can design your tennis facility to attract either wizards or imps (but not both). Which clientele would you like to attract and what would be your profi t per “person”?

Answer 1