Let us assume that there are two visitors, A and B, in an amusement park. The demand
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Question:
- Let us assume that there are two visitors, A and B, in an amusement park. The demand curve for the visitors facing the amusement park are as follows.
PA= 5 – 2QA
PB= 2.5 – 0.5QB
Marginal cost (MC) to serve each visitor is equal to $1.
- Solve for PA, PB, QA and QB assuming MR=MC.
- Calculate price elasticities of demand using Mark-up pricing formula. [Hint: use PA, PB and MC to solve for elasticities for visitor A (eA) and visitor B (eB). Each elasticity must be negative]. Mark-up pricing rule to calculate elasticities.
PA=MC/1+1eA
PB=MC/1+1eB
- Which visitor is likely to pay more, more elastic or less elastic? Explain why.
- Which visitor is likely to pay less, more elastic or less elastic? Explain why.
Related Book For
An Introduction to Management Science Quantitative Approach to Decision Making
ISBN: 978-1337406529
15th edition
Authors: David R. Anderson, Dennis J. Sweeney, Thomas A. Williams, Jeffrey D. Camm, James J. Cochran
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