Marjorie Myers, has approached Tom and Lynda, owners of Hercules, with an intriguing proposal. Marjorie wishes to offer specialized classes to small groups of expectant mothers. She believes that the exercise room at Hercules is perfect for her service, guarantees that she will not use any other part of the gym, will bring her own supplies, and promises not to interfere with the gym's operation in any way.
a. Marjorie is willing to pay $600 per month for use of the room, three days per week. She is willing to hold the class between 1 and 3 p.m. on weekdays. During this time, the gym is usually deserted and no classes are scheduled. Should Tom and Lynda accept Marjorie's offer?
b. Assume the same facts as in part (a) expect that Marjorie wishes to hold one of her classes from 6 to 7 p.m. for three weekdays. She will increase payment from $600 to $700 per month. (She will schedule the other class from 1 to 2 p.m.). This schedule will disrupt the current schedule and make some of Hercules' current classes less convenient. Tom and Lynda anticipate losing eight members as a consequence. You know that monthly membership is $100 and monthly variable costs are $35 per member. Should Tom and Lynda accept Marjorie's offer? Assume that Marjorie will not accept a deal that does not include the requested evening time slot.
c. Suppose Marjorie is willing to accept the terms in part (a) or in part (b). Using the situation in part (a) as the base, calculate the incremental profit from scheduling evening classes.