Consider Mount Snow from S8- 3. Assume that Mount Snow’s reputation has diminished and other resorts in the vicinity are charging only $ 66 per lift ticket. Mount Snow has be-come a price- taker and won’t be able to charge more than its competitors. At the market price, Mount Snow’s managers believe they will still serve 775,000 skiers and snow boarders each season.
1. If Mount Snow can’t reduce its costs, what profit will it earn? State your answer in dollars and as a percent of assets. Will investors be happy with the profit level? Show your analysis.
2. Assume that Mount Snow has found ways to cut its fixed costs to $ 28.5 million. What is its new target variable cost per skier/ snowboarder? Compare this to the current variable cost per skier/ snowboarder. Comment on your results.