Thursday, 20 February 2014

Piney Point amusement park, which is known for its roller coaster rides, faces equal numbers of two customer types, which are the “intense” riders and the “recreational” riders. The (inverse) demand curve for each type of customer is as follows: “Intense” riders: P = 100 – QI “Recreational” riders: P = 80 – QR where P is the price of a roller coaster ride (in cents), and QI is the number of rides taken by the intense customer, and QR is the number taken by the recreational customer. Note that these are the individual (inverse) demand curves, so that each “Intense” customer has the first demand curve for rides, and each “Recreational” rider has the second. The marginal cost to Piney Point of providing one ride is MC = 10. Piney Point cannot tell the types of riders apart, and so cannot “segment” the market by charging different prices to each type of customer. Which one of the following two-part pricing strategies would result in the highest profit for Piney Point? a) Charge no admissions fee to get into the park, but require a per-ride fee of 45, which is the monopoly price associate with the low-demand (“recreational”) rider. b) Charge an entry fee of 3200, and a per-ride fee of zero. c) Charge an entry fee of 2450, and a per-ride fee of 10. d) Charge an entry fee of 2312, and a per-ride fee of 12. e) Charge an entry fee of 2178, and a per-ride fee of 14. .Click here for more on this paper.......

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