Table 16-1
The table below shows the total demand for viewing a rare penguin species at a local reserve. Ecotour companies have to build discreet viewing hides for tourists to view the penguins. Each ecotour company has to pay a fixed fee of $10 000 for the right to build on the reserve. Assume that hides can be supplied to tourists at zero marginal cost. Tickets are sold to tourists to use the viewing hides.
Any firm can change tickets by steps of 1000 only. Prices for missing quantities are the exact midpoint between two adjacent prices.
-Refer to Table 16-1. If there is only one ecotourist company in this market, what ticket-price would it charge for its hides to maximise its profit?
A) $36
B) $24
C) $12
D) $8

Question

Table 16-1
The table below shows the total demand for viewing a rare penguin species at a local reserve. Ecotour companies have to build discreet viewing hides for tourists to view the penguins. Each ecotour company has to pay a fixed fee of $10 000 for the right to build on the reserve. Assume that hides can be supplied to tourists at zero marginal cost. Tickets are sold to tourists to use the viewing hides.
  Any firm can change tickets by steps of 1000 only. Prices for missing quantities are the exact midpoint between two adjacent prices.
-Refer to Table 16-1. If there is only one ecotourist company in this market, what ticket-price would it charge for its hides to maximise its profit?
A) $36 
B) $24 
C) $12 
D) $8

Quizplus · Accepted Answer

To maximize profit, the ecotour company should set its price where marginal revenue equals marginal cost. Since the marginal cost is zero, the firm's marginal revenue is equal to the price it charges for a ticket. Looking at the demand table, we can calculate the marginal revenue for different prices. For example, if the company charges $12 for a ticket, it can sell 2000+1000=3000 tickets, so its total revenue would be $36,000. Its marginal revenue for the first 2000 tickets is $12, and for the next 1000 tickets, its marginal revenue is $8. Therefore, the firm can increase its total revenue by reducing the ticket price by $4 for the last 1000 tickets sold. Hence, the firm's profit-maximizing price is $24.

Table 16-1 the Table Below Shows the Total Demand for Viewing a Viewing