A dance studio currently charges customers $25 for a half-hour dance lesson. The studio employs a large number of dance instructors who are paid only for the lessons they give and receive $10 per lesson. The studio currently spends $18,000 per month for rent and could increase its dance space by renting an adjoining unit in its building for an additional $8,000 per month. The studio’s current space is sufficient to give ten lessons per hour.
Currently the studio is open for forty hours during evenings and weekends and gives an average of 390 lessons per week during those times. However, during its thirty weekday hours, the studio gives only an average of 100 lessons per week.
(a) Calculate the breakeven sales level for a 20 percent decrease in the price of a dance lesson.
(b) Calculate the breakeven sales level for a 20 percent dance lesson price decrease for only those lessons during the studio’s weekday hours.
(c) Use the breakeven calculations in Parts (a) and (b) to explain why it would be preferable to restrict the price decrease to the studio’s weekday hours. If the price decrease were restricted to the studio’s weekday hours, what type of price-segmentation fence would be involved?