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 entertainment) to
each group is GHC 1000.
i. How much will the hotel charge members of each group for the vacation
package if it could identify the members in each group? (5 marks)
ii. How much will the profit for AG Travel and Tour be? (2 marks)
iii. Since AG Travel and Tour is not able to identify members of each group,
what price should it charge for each product? (3 marks)
iv. What will be the profit for AG Travel and Tour in the case of (iii) above?
(3 marks)
v. If AG Travel and Tour wants to charge a package price, what is the highest
price it can charge? (4 marks)
vi. What profit will AG Travel and Tour make if it charges the package price
found in (v) above?
Answers
Explanation:
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 entertainment) to
each group is GHC 1000.
i. How much will the hotel charge members of each group for the vacation
package if it could identify the members in each group? (5 marks)
ii. How much will the profit for AG Travel and Tour be? (2 marks)
iii. Since AG Travel and Tour is not able to identify members of each group,
what price should it charge for each product? (3 marks)
iv. What will be the profit for AG Travel and Tour in the case of (iii) above?
(3 marks)
v. If AG Travel and Tour wants to charge a package price, what is the highest
price it can charge? (4 marks)
vi. What profit will AG Travel and Tour make if it charges the package price
found in (v) above?