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 $5000 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. $\begin{array}{|c|c|}
\hline \text { Quantity (Visits) } & \text { Price(\$ ticket) } \
\hline 0 & 48 \
\hline 2000 & 36 \
\hline 4000 & 24 \
\hline 6000 & 12 \
\hline 8000 & 8 \
\hline 10000 & 4 \
\hline 12000 & 0 \
\hline
\end{array}$ $\begin{array}{|c|c|c|}
\hline \text { Quantity (Visits) } & \text { Price(\$ ticket) } & \text { Revenue } \
\hline 0 & 12 & 0 \
\hline 1000 & 10 & 10 \mathrm{k} \
\hline 2000 & 8 & 16 \mathrm{k} \
\hline 3000 & 6 & 18 \mathrm{k} \
\hline 4000 & 4 & 16 \mathrm{k} \
\hline 5000 & 2 & 10 \mathrm{k} \
\hline 6000 & 0 & 0 \
\hline
\end{array}$ Any firm can change tickets by steps of 500 only.Any 500 step of quantity is assumed to be sold at the midpoint of the two prices (eg.3500 tickets would be sold for $5)
-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)$2
B)$4
C)$6
D)$8

Question

Quizplus · Accepted Answer

To maximize profit, the ecotourism company should set its ticket price at the point where marginal revenue (MR) equals marginal cost (MC). Since the hides have zero marginal cost, the marginal cost is simply the fixed fee of $5000 divided by the total number of tickets sold.

Using the table, we can calculate the total revenue and marginal revenue at each price point:
- At a price of $2 per ticket, the company sells 4000 tickets and earns total revenue of $8000. The marginal revenue at this quantity is also $2.
- At a price of $4 per ticket, the company sells 5500 tickets and earns total revenue of $22,000. The marginal revenue at this quantity is $1 per ticket.
- At a price of $6 per ticket, the company sells 7000 tickets and earns total revenue of $42,000. The marginal revenue at this quantity is $0.50 per ticket.
- At a price of $8 per ticket, the company sells 8000 tickets and earns total revenue of $64,000. The marginal revenue at this quantity is $0.25 per ticket.

Therefore, the ecotourism company should set its ticket price at $6 to maximize profit.

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

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