# Question: You run a rather plush ride concession at an amusement

You run a rather plush ride concession at an amusement park. It costs you \$ 500 per day to have the ride available to patrons of the park. For each rider you have, the incremental cost is \$ 1. The patrons of the park appear to fall into two groups. Members of the first group are not concerned with taking a variety of rides but are quite responsive to ride price and will take the same ride many times. Members of the second group like variety in their rides and will pay a good deal to have at least one turn on a particular ride. The daily demand for rides on your concession by a patron of the park in each of the two groups is shown in the table:
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Each day each group includes about 100 patrons.
a. If the amusement park limits you to a one- part pricing structure consisting of a price per ride that is the same for every ride taken, what price will you charge?
b. If you could charge a two- part tariff consisting of a fee for access to your concession plus a charge for each ride taken, then what access fee and ride charge would you set? How much would you be willing to pay to the amusement park’s owners to permit you to use this pricing structure?
c. If you could charge each patron a declining amount for each ride the patron took— that is, \$ 3 for the first ride, \$ 2.50 for the second, and so on— could you do better for yourself and for the amusement park than you could with either a single price or a two- part tariff? Explain why or whynot.

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• CreatedNovember 14, 2014
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