An amusement park faces large fixed costs of $500,000 per month and low average variable costs of $10 per visitor. It charges all visitors an entry fee of $50 for unlimited rides.
a) What is the breakeven point for this park?
b) The park currently has 42,000 visitors a month and proposes to raise its entry fee to $60 per person to cover the cost of a new Harry Potter-themed ride. What is the new breakeven point if the variable cost increases to $15 per visitor?
c ) If the park now receives 25,000 visitors a month because of the increase in entrance fee in Part (b), will the park still be a pro table?
An amusement park faces large fixed costs of $500,000 per month and low average variable costs of $10 per visitor. It charges all visitors an entry fee of $50 for unlimited rides.
a) What is the breakeven point for this park?
b) The park currently has 42,000 visitors a month and proposes to raise its entry fee to $60 per person to cover the cost of a new Harry Potter-themed ride. What is the new breakeven point if the variable cost increases to $15 per visitor?
c ) If the park now receives 25,000 visitors a month because of the increase in entrance fee in Part (b), will the park still be a pro table?
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An amusement park is considering changing its pricing system from a pay-per-ride system to a single entrance fee entitles the entrant to unlimited rides. Assume that the park is not close to approaching the attendance capacity. The marginal value for rides for the typical entrant is listed below:
Quantity Marginal Value
|
1 2 3 4 5 6 7 |
2.50 2.00 1.50 1.00 0.50 0.10 0.00 |
a) Assuming that the marginal cost is zero to provide the rides to those in attendance, what is the best pay-per-ride price (consider only 50 cent increments)?
b) Suppose instead the park just charges an entrance fee. What is the profit-maximizing entrance fee?
c) Under which system are profits higher?
d) Under which system is ride usage higher?
e) If, instead, the marginal cost of providing a ride were $0.30, what revision in the pricing scheme, if any, would you suggest? (extra credit, you may skip this question without penalty)
