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Problem 4 A yoga studio faces consumers whose inverse demand for yoga classes is given by...

Problem 4 A yoga studio faces consumers whose inverse demand for yoga classes is given by p = 40 – Q, where Q is the number of yoga classes each consumer takes and p is the price per yoga class. Suppose that the studio incurs a cost of 20 per student per yoga class. (a) Which price will the yoga studio set if it can only charge a uniform price (i.e., constant price per class)? How many classes will each student take? (b) Now suppose that yoga studio can sell a card that allows card holders to take N classes. The price of the card is T. Which N and T will the yoga studio choose if it wishes to maximize its profits? (c) Now suppose that instead of selling a card, the yoga studio asks consumers to register as members. The membership fee is M. Once registered as a member, a consumer may take as many classes as a he likes at a price of p per class. Which M and p will the yoga studio choose if it wishes to maximize its profits?

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