A profit-maximizing skeet club segments its market. It charges juniors $4 per round based on their price elasticity of demand of -2.0. Its adult shooters have a price elasticity of demand of -1.4. The marginal cost per round does not vary by the shooter's age. What price does the skeet club charge adult shooters?
A) $7
B) $8
C) $6
D) $5.75

Question

Quizplus · Accepted Answer

The club uses the formula P = MC / (1 + 1/E) to set prices. For juniors, P = $4 and E = -2, so MC = $4 * (1 + 1/2) = $2.67. For adults, E = -1.4, so P = $2.67 * (1 + 1/1.4) = $7.

A Profit-Maximizing Skeet Club Segments Its Market