Costco requires customers to buy an annual membership ($60/y…
Costco requires customers to buy an annual membership ($60/year) to shop in its stores. Inside, product prices are very low, often near Costco’s marginal cost, resulting in small or non-existent per-item markups. Despite low markups, Costco is highly profitable. Using the concepts of consumer surplus, producer surplus, and pricing strategies discussed in this course, explain the economic logic behind Costco’s successful business model. Why can this strategy be more profitable than a traditional high-markup retail model?