Answer to Question #123694 in Economics of Enterprise for Esinam

Question

Management of AG Travel and Tour has identified two groups of individuals that
would be interested in the vacation package consisting of room and board and/or
entertainment. The maximum amount that group 1 is willing to pay for room and
board is GHC 2500 and for entertainment is GHC 500. For group 2, the maximum
amount they are willing to pay for room and board is GHC 1800 and for
entertainment is GHC 750. Although AG Travel and Tour is not able to identify
members of either group, it does know that each group values the components of
the package differently. Assuming there are an equal number of members in each
group and that the total membership in each group is a single individual. If the
marginal cost of providing the service (room and board and/or entertainm

Answer 1

$$p_1=2500, p_1^/=500$$

$${p_1}_{total}=p_1+p_1^/=3000$$

$$p_2=1800, p_2^/=750$$

$${p_2}_{total}=p_2+p_2^/=2550$$

Utility maximization will be achieved when the condition

$$\frac{MU_1}{{p_1}_{total}}=\frac{MU_2}{{p_2}_{total}}$$

$$\frac {MU_1}{3000}=\frac{MU_2}{2550}$$