An amusement park, whose customer set is made up of two markets, adult and children, has developed demand schedules as follows:
|Price ($)||Quantity, Adults||Quantity, Children|
The marginal operating cost of each unit of quantity if $5. (Hint: Because marginal cost is a constant, so is average variable cost. Ignore fixed cost.) The owners of the amusement park want to maximize profits.
1. Calculate the price, quantity, and profit for each segment if the amusement park charges a different price in each market. (Hint: Calculate profit at each price in the adult market, then in the child market, and choose profit maximizing in each. Using a spreadsheet would make this task manageable.)
(a) Adult market price (in dollars)?
(b) Adult market quantity?
(c) Adult market profit (in dollars)?
(d) Child market price (in dollars)?
(e) Child market quantity?
(f) Child market profit (in dollars)?
(g) Total profit (adult + child, in dollars)?
2. Calculate the price, quantity, and profit if the amusement park charges the same price in the two markets combined. (Hint: Add adult and child quantities together, and treat this total and the entire market quantity at each price.)
(a) Market price (in dollars)?
(b) Quantity (child + adult at this price)?
3. Is profit higher, lower, or the same when the market is split with different prices for adults and for children?
Profit is measured by subtracting the total cost from the total revenue. Total cost is the sum of fixed cost and variable cost. Variable cost is the product of average variable cost and quantity. Total revenue is the product of quantity and price. Marginal revenue is calculated by dividing the change in total revenue by the change in quantity.
Answer and Explanation:
|Price ($)||Quantity, Adults||Adult Total Revenue||Marginal Revenue||Total cost||Profit|
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from Intro to Business: Help and ReviewChapter 24 / Lesson 6
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