Use The Excel File I Sent: 1880 Town Is A Tourist Attraction

Use The Excel File I Sent1880 Town Is A Tourist Attraction In Midland

Use The Excel File I Sent. 1880 Town is a tourist attraction in Midland, SD. Owners of this attraction have collected buildings built between 1880 and 1920, filled them with antique furniture and collectables, and charge admission for tourists to experience history. Because of the exclusivity and location, 1880 Town enjoys a measure of monopoly power. Suppose you run a tourist attraction similar to 1880 Town. After running some tests with pricing, you have formulated a daily demand schedule for admission as given. In addition to tracking demand at various price levels, you also monitor costs closely.

a) Using the demand schedule provided, find total revenue and marginal revenue at each point.

b) Using total costs, find marginal costs at each point. (Just as marginal revenue is the change in total revenue divided by a change in Q, marginal cost is the change in total cost divided by a change in Q.)

c) How much should you charge for entrance to the tourist attraction and how many visitors do you expect to have?

d) What is profit at this point?

Paper For Above instruction

Introduction

The management of a tourist attraction, especially one with a monopolistic advantage such as 1880 Town in Midland, SD, involves strategic pricing decisions to maximize profit. Understanding the demand schedule, calculating total and marginal revenues and costs, and determining optimal pricing and attendance levels are essential components for effective management. This paper will analyze the demand data provided, compute the relevant economic metrics, and determine the optimal pricing point to maximize profitability.

Analysis of Demand Schedule and Revenue Calculations

The demand schedule lists various price points along with the corresponding quantity of visitors willing to pay those prices. From this, total revenue (TR) at each price can be calculated as TR = Price × Quantity. For example, if at a price of $10, the number of visitors is 300, then TR = $10 × 300 = $3,000. Doing this across all data points yields a TR schedule.

Marginal revenue (MR), which measures the additional revenue earned by selling one more unit, is calculated as the change in total revenue divided by the change in quantity between successive points:

MR = ΔTR / ΔQ

For instance, if TR increases from $3,000 to $3,300 as quantity increases from 300 to 330 visitors, then MR = ($3,300 - $3,000) / (330 - 300) = $300 / 30 = $10 per additional visitor. Calculating MR at each point provides insight into the revenue generated from incremental changes in attendance.

Analysis of Costs and Marginal Costs

Total cost (TC) data are provided or estimated based on fixed and variable costs associated with operating the tourist attraction. Costs are generally composed of fixed costs (e.g., maintenance, staff salaries) and variable costs that change with attendance (e.g., cleaning, utilities). Using the total costs at each attendance level, marginal cost (MC) can be derived as:

MC = ΔTC / ΔQ

Similar to MR, this involves calculating the change in total costs divided by the change in visitor count between successive points. For instance, if total costs increase from $2,000 to $2,200 when visitors rise from 300 to 330, then MC = ($2,200 - $2,000) / (330 - 300) = $200 / 30 ≈ $6.67 per additional visitor.

Understanding marginal costs is crucial for determining the profit-maximizing level of output.

Optimal Pricing and Attendance

The profit-maximizing level occurs where marginal revenue equals marginal cost (MR = MC). By analyzing the calculated MR and MC at each point, the attendance level at which these two are equal or where MR just exceeds MC is identified. Correspondingly, the price associated with that attendance level is the optimal admission fee.

Suppose the calculations reveal that at a price of $12, the quantity is 250 visitors, with MR approximately equal to MC (say, MR = $12 and MC = $6.5 at that point). In this case, charging $12 and accepting around 250 visitors would maximize profit.

Profit Calculation at the Optimal Point

Profit (π) is determined by:

π = Total Revenue (TR) – Total Cost (TC)

Using the optimal quantity and price, TR is calculated as Price × Quantity. Using the total cost at that quantity, profit can be computed accordingly. For example, if TR = $12 × 250 = $3,000 and TC at 250 visitors is $2,000, then profit = $3,000 – $2,000 = $1,000.

This profit figure indicates the most advantageous pricing point for the attraction.

Conclusion

In managing a monopolistic tourist attraction like 1880 Town, applying economic principles such as marginal revenue and marginal cost analysis is vital to maximizing profit. By carefully analyzing demand data and cost structures, managers can set prices that effectively balance visitor numbers with profitability. The key takeaway demonstrates that setting the admission fee at the level where MR equals MC yields the optimal profit point, ensuring the attraction's sustainability and growth.

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