Question

1. An amusement park, whose customer set is made up of two markets, adult and children, has developed demand schedules as follows:

Price ($)	Quantity, Adults	Quantity, Children
5	15	20
6	14	18
7	13	16
8	12	14
9	11	12
10	10	10
11	9	8
12	8	6
13	7	4
14	6	2

The marginal operating cost of each unit of quantity is $5. (Hint: Because marginal cost is a constant, so is average variable cost. Ignore fixed cost.) The owners of the amusement park want to maximize profits.

1. Calculate the price, quantity, and profit for each segment if the amusement park charges a different price in each market. (Hint: calculate profit at each price in the adult market, then in the child market, and choose profit maximizing in each. Using a spreadsheet would make this task manageable.)

Adult market price (in dollars):

Adult market quantity:

Adult market profit (in dollars):

Child market price (in dollars):

Child market quantity:

Child market profit (in dollars):

Total profit (adult + child, in dollars):

2. Calculate the price, quantity, and profit if the amusement park charges the same price in the two markets combined. (Hint: Add adult and child quantities together, and treat this total and the entire market quantity at each price.)

Market price (in dollars):

Quantity (child + adult at this price):

Profit:

3. Is profit higher, lower, or the same when the market is split with different prices for adults and for children?

Answer 1

a.

price	adult quantity	TR	TC	Profit	Children quantity	TR	TC	profit
5	15	75	75	0	20	100	100	0
6	14	84	70	14	18	108	90	18
7	13	91	65	26	16	112	80	32
8	12	96	60	36	14	112	70	42
9	11	99	55	44	12	108	60	48
10	10	100	50	50	10	100	50	50
11	9	99	45	54	8	88	40	48
12	8	96	40	56	6	72	30	42
13	7	91	35	56	4	52	20	32
14	6	84	30	54	2	28	10	18

here in ADULT, profit maximization Quantity is 7. and price is 13.

and in CHILDREN, profit maximization Quantity is 10. and price also 10.

NOTE: profit maximization quantity is where MR equals to MC.

TR= P*Q

TC=MC*Q

B.

price	Total quantity	TR	TC	profit
5	35	175	175	0
6	32	192	160	32
7	29	203	145	58
8	26	208	130	78
9	23	207	115	92
10	20	200	100	100
11	17	187	85	102
12	14	168	70	98
13	11	143	55	88
14	8	112	40	72

profit maximizing Quantity is 17 and price is 11.

C.

Higher

Explanation :

total profit when split= 50+56=106.

where as total profit when combine= 102.

so, here when market is split profit will be higher.