Answered: The town council of Frostbite, Ontario,…

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter17: Long-term Investment Analysis

Section: Chapter Questions

Problem 5E

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The town council of Frostbite, Ontario, is trying to decide whether to build an outdoor skating rink which would cost $1.2 million and last for only one season. Operating costs would be zero. Yearly passes would be sold to anyone who wanted to use the rink. If p is the price of the pass in dollars, the number demanded would be q = 1600 - 0.8p. The council has asked you to advise them on building the rink. You should tell them that Group of answer choices revenues won’t cover construction costs at any ticket price. There is no way to increase total consumer surplus by building the rink. if the rink is built and price is set to maximize profits, the town makes a profit and consumers will be better off. if the rink is built and price is set to maximize profits, the town makes a profit but consumers are worse off than without a rink. there is no price at which ticket revenues cover costs but the total consumer surplus from the rink exceeds costs. None of the above. The function is q=1600-0.8p and the profit is negative. Some answers said d is correct, but I am not sure why the total consumer surplus is 0.5*1600*2000 instead of 0.5*800*1000. Is option d correct? or is it "none of the above"?

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