Consider Mount Snow from Short Exercise 20-2. Assume that Mount Snow’s reputation has diminished and other resorts in the vicinity are only charging $80 per lift ticket. Mount Snow has become a price-taker and will not be able to charge more than its competitors. At the market price, Mount Snow managers believe they will still serve 700,000 skiers and snowboarders each season.
Requirements
1. If Mount Snow cannot 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?
2. Assume Mount Snow has found ways to cut its fixed costs to $32,900,000. What is its new target variable cost per skier/snowboarder?