Consider SnowCastles from S8-3. Assume that SnowCastles' reputation has diminished and other resorts in the vicinity are charging only $60 per lift ticket. SnowCastles has become a price-taker and won't be able to charge more than its competitors. At the market price, SnowCastles' managers believe they will still serve 800,000 skiers and snowboarders each season.
1. If SnowCastles 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 SnowCastles has found ways to cut its fixed costs to $31 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.