Determine elasticity of demand-revenue maximizing price

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Reference no: EM1316514

Suppose that the typical snowboarder skier visiting Mount Mogul ski resort on a typical day would be willing to pay for lifts up the mountain according to the following schedule.

a) Why does the WTP schedule slope downward?

b) Suppose all skiers at Mount Mogul had the same WTP schedule as this skier and the resort operator charged $5per ride up the lift. What is the elasticity of demand at this price?

c) Is $5/lift ride the per ride price which maximizes revenue? Explain, using the elasticity concept in your answer:

d) Show the area on the graph that would correspond to consumer's surplus earned by the typical boarder/skier with this payment scheme. Explain your answer briefly.

e) If the ski-resort owner eliminates the possibility of buying single ride lift tickets and instead sells only an all-day lift pass, entitling the skier/boarder to as many trips up the mountain as desired, what is the maximum price that could be charged without discouraging the skier from coming to Mount Mogul?

Reference no: EM1316514

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