Question

You and a group of friends are planning to visit a theme park, which charges $60 for admission, $80 for a two-day pass, and $90 for a three-day pass. Your friends are interested in spending a lot of time there, but they’re worried about paying a lot of money. You explain the concept of marginal cost, which helps them see that the additional day is a good value.

1. The average cost per day of a three-day pass is   $   per person.

2. The marginal cost of adding the third day is   $   per person.

3. If there are 6 people in your group, the group's marginal cost of switching from the two-day pass to the three-day pass is   $  .

Answer 1

1) Average cost = Total cost / number of days

Average cost of 3 day pass = 90/3 = $30.

2) Marginal cost of adding third day = TC(3 day) - TC(2 day)

=90-80 = $10.

3) Marginal cost of adding third day when there are 6 people = 6(90-80) = $60.