1. Stores such as Sam\'s Club and Costco charge an annual membership fee of appr

Question

1. Stores such as Sam's Club and Costco charge an annual membership fee of approximately $40. As a member you can purchase products at lower prices, but typically in larger quantities than one buys at ordinary stores. Savings vary from product to product, but for this question, let us assume you can save $20 for every $100 dollars you spend at one of these stores compared to shopping elsewhere.

a) Suppose you spend $100 dollars in one year at such a store. Do you come out ahead? How much do you save (or lose?) compared to not having membership and paying full price?

Explanation / Answer

Let S1 be the cost spent on products without membership in one year.

Given S1 = $100

Then the cost S2 spent on products with membership

S2 = 100 - 20 + 40 = 120

Therefore the difference cost S1-S2 = 100-140 = $40

Thus we lose $40 compared to not having membership and paying full price.

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