At an amusement park with a "horror" roller coaster, management has estimated that the average visitor has a demand function P = 9 – (Q/3), where P is the average game price and Q is the number of trips per visitor. The total cost to the average visitor is C = 1 + Q.
Management is considering two pricing schemes. Either charge P per ride, or charge a general admission price that will allow the visitor to do as many rides as they like wants.
(a) If management chooses per-ride pricing, what price will it charge and what will be the profit per visitor?
(b) If he chooses a general entry price this will be such as to extract all of the surplus from each consumer. What will be the general admission price and profit per visitor? (hint: the general input price will be revenue P×Q + CS, where CS = 0.5×(9 – Ρ)×Q is the consumer surplus corresponding to the profit-maximizing quantity).n