Suppose that The Walt Disney Company decides to locate a new resort, LoneStar Disney, between Houston...

Suppose that The Walt Disney Company decides to locate a new resort, LoneStar Disney, between Houston and Dallas. Disney’s crack economists have estimated that each person will take an average of q = 50 – 25P rides, where P is the price per ride. Assume that the marginal cost of each ride is zero.

a. If Disney decides to set its admission price at zero and simply charge monopoly price per ride, what is this price? How many rides per visitor? Show/illustrate your work.

b. Suppose, instead, Disney can charge an entry fee. After entry each ride is free (P=0). How many rides does each visitor take? If Disney charges an entry fee corresponding to the block price at this number of rides, what is this entry fee? Show/illustrate your work.

c. If (a) and (b) are the only two options available, and neither costs nor the forecasted number of visitors are expected to differ substantially amongst the two, what would you advise Disney to do? Why?

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Expert Solution

Rahul Sunny answered 1 year ago

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