Consider the market for rides at an amusement park. Because it is the only amusement park around, it acts as a monopolist with market power and uses a linear pricing strategy by selling rides to all entrants for the same price. All consumers have roughly the same demand (d) as depicted on the following graph, which also shows the marginal revenue (mr) curve. The marginal cost (MC) to the amusement park of an additional ride is constant at $1.60. For simplicity, assume that fixed costs are zero so marginal costs equal average costs (AC). On the following graph, use the grey point (star symbol) to indicate the monopoly outcome under linear pricing strategy. Then, use the purple rectangle (diamond symbols) to shade the area representing profit per consumer at the profit-maximizing price and quantity. Note: Select and drag shaded regions from the palette to the graph. To resize the shaded regions, select one of the points and move to the desired position. PRICE (Dollars per ride) 4.0 3.6 3.2 2.8 2.4 2.0 1.6 1.2 0.8 0.4 0 0 2 4 mr 6 8 10 12 14 QUANTITY (Number of rides) MC=AC d 16 18 20 Monopoly Outcome Profit To maximize profits, the admission fee should be set equal to $ Consumer Surplus Now suppose the park decides to switch to a two-part pricing scheme by charging an admission fee but also lowering the cost of an individual ride. In this case, the profit-maximizing per-ride charge would be $ (?) Use the green triangle to shade the region representing consumer surplus given this pricing plan, before accounting for the admission fee. per consumer.
Consider the market for rides at an amusement park. Because it is the only amusement park around, it acts as a monopolist with market power and uses a linear pricing strategy by selling rides to all entrants for the same price. All consumers have roughly the same demand (d) as depicted on the following graph, which also shows the marginal revenue (mr) curve. The marginal cost (MC) to the amusement park of an additional ride is constant at $1.60. For simplicity, assume that fixed costs are zero so marginal costs equal average costs (AC). On the following graph, use the grey point (star symbol) to indicate the monopoly outcome under linear pricing strategy. Then, use the purple rectangle (diamond symbols) to shade the area representing profit per consumer at the profit-maximizing price and quantity. Note: Select and drag shaded regions from the palette to the graph. To resize the shaded regions, select one of the points and move to the desired position. PRICE (Dollars per ride) 4.0 3.6 3.2 2.8 2.4 2.0 1.6 1.2 0.8 0.4 0 0 2 4 mr 6 8 10 12 14 QUANTITY (Number of rides) MC=AC d 16 18 20 Monopoly Outcome Profit To maximize profits, the admission fee should be set equal to $ Consumer Surplus Now suppose the park decides to switch to a two-part pricing scheme by charging an admission fee but also lowering the cost of an individual ride. In this case, the profit-maximizing per-ride charge would be $ (?) Use the green triangle to shade the region representing consumer surplus given this pricing plan, before accounting for the admission fee. per consumer.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Consider the market for rides at an amusement park. Because it is the only amusement park around, it acts as a monopolist with market power and
uses a linear pricing strategy by selling rides to all entrants for the same price.
All consumers have roughly the same demand (d) as depicted on the following graph, which also shows the marginal revenue (mr) curve. The
marginal cost (MC) to the amusement park of an additional ride is constant at $1.60. For simplicity, assume that fixed costs are zero so marginal costs
equal average costs (AC).
On the following graph, use the grey point (star symbol) to indicate the monopoly outcome under linear pricing strategy. Then, use the purple
rectangle (diamond symbols) to shade the area representing profit per consumer at the profit-maximizing price and quantity.
Note: Select and drag shaded regions from the palette to the graph. To resize the shaded regions, select one of the points and move to the desired
position.
PRICE (Dollars per ride)
4.0
3.6
3.2
2.8
2.4
2.0
1.6
1.2
0.8
0.4
0
0
2
4
mr
6
8 10 12 14
QUANTITY (Number of rides)
16
MC=AC
d
18 20
Monopoly Outcome
Profit
To maximize profits, the admission fee should be set equal to $
Consumer Surplus
Now suppose the park decides to switch to a two-part pricing scheme by charging an admission fee but also lowering the cost of an individual ride. In
this case, the profit-maximizing per-ride charge would be $
(?)
Use the green triangle to shade the region representing consumer surplus given this pricing plan, before accounting for the admission fee.
per consumer.
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