Economics

Taunton Tennis

Jean-Pierre Benoît

Taunton Tennis has six tennis courts available and must determine how to price them.

1. TT has decided to set a single hourly rate for using its tennis courts. However TT does not know its demand curve. How might it go about determining what the demand curve is? What are the advantages and disadvantages of di¤erent methods?

2. Having set its price, TT notices that, generally speaking, there is a greater demand for courts after 18:00 than before, although it is rarely the case that all the courts are full at any time. TT is now consider- ing charging two prices, one for reservations before 18:00 and one for reservations after 18:00. Should it do so and on what does your answer depend?

3. The manager at TT argues that prices should be set so that, generally speaking, the courts are full, since the marginal cost of a court is es- sentially zero. Assuming the marginal cost is, in fact, essentially zero, is the manager�s reasoning correct?

4. One owner believes that whatever the rate, that rate should not depend on the number of people on the court. Another owner believes that, on the contrary, the rate should be per person playing, not per court. What do you think, and why?

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