An amusement park is considering changing its pricing system from a pay-per-ride system to a single entrance fee entitling the entrant to unlimited rides. Assume that the park is not close to approaching the attendance capacity. The marginal value for rides for the typical entrant is listed below:
Quantity (# of rides) __________________ Marginal value ($)
1 ........................................... $2.50
2 ........................................... $2.00
3 ........................................... $1.50
4 ........................................... $1.00
5 ........................................... $0.50
6 ........................................... $0.10
7 ........................................... $ 0
At a price of $2.50 per ride, how many rides would our consumer ride?= 1 ride
If the price were $2.00 per ride, how many rides would our consumer ride? = 2 rides
a. Assuming that the marginal cost is zero to provide the rides to those in attendance, what is the best pay-per-ride price (take make things convenient for the cashiers, consider only 50 cent increments)?
b. Instead of pay-per-ride, you implement an entrance fee (and unlimited rides).
What is the profit-maximizing entrance fee?