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Homework answers / question archive / A VR Game Centre (CCVR Centre) considers adopting a ‘pay-per-game’ charging model to exploit all potential gain from the customers

A VR Game Centre (CCVR Centre) considers adopting a ‘pay-per-game’ charging model to exploit all potential gain from the customers

Economics

A VR Game Centre (CCVR Centre) considers adopting a ‘pay-per-game’ charging model to exploit all potential gain from the customers. Assuming that there is no fixed cost and marginal cost of operation per game and the following table shows the demand schedule of a ‘typical’ customers on its games.

Price($) 90 80 70 60 50 40 30 20 10 0 Games 1 2 3 4 5 6 7 8 9 10

As a new appointed manager of CCVR Centre, your boss asks you to provide a recommendation on the ‘pay-per-game’ charging model. In your recommendation, besides providing a conclusion on whether your company can capture all potential gain, you are also required to provide the figures of the marginal benefit, marginal revenue, total benefit and total revenue on each quantity a typical customer under the pay-per-ride charging model, the profit-maximizing price and quantity and profit your company could earn per typical customer.

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The following table captures the workings and the conclusion required in the question.

Q (games) Price (P) Total Revenue (TR=P*Q) Marginal Revenue Total Cost Marginal Cost Total Profit (TR - TC) Marginal Profit (MR-MC)
1 90 90 90 0 0 90 90
2 80 160 70 0 0 160 70
3 70 210 50 0 0 210 50
4 60 240 30 0 0 240 30
5 50 250 10 0 0 250 10
6 40 240 -10 0 0 240 -10
7 30 210 -30 0 0 210 -30
8 20 160 -50 0 0 160 -50
9 10 90 -70 0 0 90 -70
10 0 0 -90 0 0 0 -90

The rule is that profit is maximized where MR = MC. In this case since MC=0, we need to look for the point wehre MR=0. That point is Q=5 and P=50, where TR=250 and profit = 250. The table also shows the other relevant data on this such as MR, Marginal Profit, etc.

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