Answer to Question #273129 in Microeconomics for sandhya

Question

1.     A local gym owner knows that there are two types of customers: type 1 is serious about fitness while type 2 is the casual gym go-er. He has no fixed cost and the marginal cost of providing an extra unit of service is 1/-. He has the following information

·       There are  consumers of type 1 each with the demand curve  

·       There are  consumers of type 2 each with the demand curve

How does his optimal strategy depend on the relative size of and  if he adopts a two-part tariff pricing1.     

Answer 1

Since the local gym manager is a monopolist and a price-fixer, the ideal method is independent of the relative size of N 1 and N 2. He will set the quantities of q1 and q2 at such a level that Marginal Revenue = Marginal Cost.