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 and therefore can be ignored. The Willingness to pay for rides for the typical entrant is listed below:
Quantity Willingness to Pay (per ride)
1 2.50
2 2.00
3 1.50
4 1.00
5 0.50
6 0.10
7 0.00
a. Assuming that the marginal cost is zero to provide the rides to those in attendance, what is the pay-per-ride price (consider only the data given) that will maximize profits?
b. What would be the profit maximizing entrance fee?
c. Under which system are profits higher?
d. Under which system is ride usage higher?