Question

Supposing Disney World is considering franchising its Disney land to interested investors in Emerald Park which is 5 miles long. Disney World estimates that the daily average number of visitors N will be 2,000 for variety of attractions and that each visitor will buy one pass per day provided that the price plus the commuting cost does not exceed $10. Each visitor incurs commuting cost c of $1 for every half mile. Disney World incur a cost of $0.50 per pass and a fixed cost of $100 per day. Answer the following questions:

a) Where should Disney land be located in Emerald Park? What price should the franchise charge to provide service to all the visitors? Calculate the profit.

b) Use a suitable diagram to illustrate the location of the franchise, the visitors and the price it will charge.

c) Assume the franchise acts like a monopoly and restrict output, determine the monopolist’s profit maximization price and quantity.

Answer 1

A.Disney land should be in the middle of Emerald park.

Spending money by Disney on visitors.Visitors 2000 ×.50 CoST per person=1000 rs+ fixed cost 100=1100rs

Collection from visitors ,10$×2000visitors=$20000

So here the profit is 20000-1100=18900$

B.

C. If the franchise work as monopoly it can maximise it's profit to the maximum and can sell the product as his desirable price.price will be more than $10 and product will be restricted and it is provided to some lucky customer.