Question:
An amusement park’s customers each have the demand curve for park rides given by Q = 11 –
0.5P, where P is the price per ride and Q measures the number of rides. The marginal cost is $4.
If the amusement park uses a two-part tariff, what are the park’s entrance fee and its price per
ride?
Answer:
In case of two-part tariff, the monopolist sets two types of prices: fixed entry fees and a per unit
consumption price.
The fixed entry fees is the Consumer surplus and the per unit price is the marginal cost.
For the given question, MC=$4. This makes the price per ride equal to $4
Coming to the fixed entrance fees, consumer surplus = Area of triangle above price line and
below demand curve
Numerically, C.S. = (1/2) (9) (22-4) = (1/2) (9) (18) = 81
Hence, entrance fees = $81
(Note: 9 is the value of Q when P=MC=$4 and 22 is the vlaue of price when Q=0)
Thus, correct option is: (a) entrance fee = $81; price per ride = $4