Reference no: EM133658267
Problem
Greg Gordon manages the 10,000-square-foot multilevel laser tag arena at LazerLite. This arena combines cutting-edge computer technology with action-oriented team play; in a futuristic environment with boggling mazes, fantastic fog swirls, and adrenaline pumping music, players attempt to score points by "tagging" opponents and targets with a laser phaser. LazerLite charges its customers $7.50 to play a 10-minute game of laser tag. The fixed costs associated with operating the laser tag arena amount to $2,500 per week, with variable costs equaling $3.00 per person per game. On average, 1,400 persons visit LazerLite per week, each playing one game of laser tag. LazerLite also offers its customers a fully stocked video arcade. When not playing laser tag, customers can enjoy some of the hottest video games and coolest simulator rides. Approximately 75% of all customers who play laser tag each week patronize the video arcade. Once inside the arcade, customers spend approximately $6 on video games and rides. The variable costs of running the video arcade equal 10% of video arcade revenue, while the fixed costs of running the video arcade total $2,000 per week. The owners of LazerLite are considering running an after-school special Monday through Thursday from 3:30 p.m. to 5:30 p.m. The after-school special will reduce the price of a laser tag game from $7.50 per person to $5.00 per person (thus, there will be a $2.50 savings per game of laser tag during this time). Management expects that 500 people, each playing one game of laser tag, will take advantage of the special each week. However, management also expects that, because of the special, weekly demand for laser tag games at the normal price of $7.50 per game will decrease by 300 (thus, the special will attract a net of 200 additional people). The incremental fixed costs associated with running the after-school special are expected to equal $150 per week (for advertising).
Task
1. From Greg's perspective, is the after-school special desirable? Assume that as the manager of the laser tag arena, Greg receives an annual bonus tied to the profitability of the laser tag arena.
2. From the perspective of LazerLite, is the after-school special desirable?