A monopolist is about to open a new amusement park. A typical visitor is expecte
ID: 1093496 • Letter: A
Question
A monopolist is about to open a new amusement park. A typical visitor is expected to take Q = 8- P rides, where P is the price of a ride. The marginal cost of a ride is two (MC = AC = 2).
1. Derive the typical visitors inverse demand function, where P is a function of Q, for rides. How much is a typical visitor willing to pay (reservation price) for a total of 4 rides?
2. The monopolist decides to practice a two-part tariff in the park. How much admission fee would she set and how much would she charge per ride? What will be the profit per visitor?
3. Now, she considers to sell a package of tickets (each ticket is redeemed for one ride) instead of charging admission fee. How many tickets should be included in the package and what should the price of the package be?
Explanation / Answer
1. Q=8-P
P= 8-Q Q=4 P= $4
2. In a two part tariff you price where D=MC and charge an admission fee equal to the consumer surplus at that point.
So here when MC=2, Q=6.
Consumer surplus is 1/2 (6*6) =$18 so that is your admissions fee. Price of each item is equal to maginal cost so that is 2. Profit per visitor is $18.
Not sure on 3 but I hope this helps.