Question

It is believed the present capacity of Ocean Park is well-sufficient in accommodating the heaviest flow of visitors at ease. And the annual visitors to the park fell to 5.7 million in 2019 having topped at 7.5 million a few years previously. Draft, with an illustration of the various cost concepts, the average total cost (ATC) curve which is most relevant and locate the point where the park has been operating at.

Answer 1

Consider the present capacity is sufficient for the heaviest flow of visitors and this means that maximum number of visitors who visited few years back can also be accommodated very easily as a result of which we can understand that the Ocean park is experiencing economies of scale and the average total cost is decreasing because the capacity is still there to accommodate even large number of customers as a result of which the average total cost in 2019 will be higher than that of average total cost when the visitors are 7.5 million. This is shown in the figure below