The Walt Disney Company Is in a Position to Use

question 241

Multiple Choice

The Walt Disney Company is in a position to use a two-part tariff policy in setting prices for admission and rides at Disney World.If this strategy resulted in maximum profit, Disney would convert all consumer surplus into profit.Which of the following explains why Disney does not maximize its profits from admission and rides?

• A)To maximize its profits, Disney would have to know the demand curves of each of its customers. Since this is not possible, Disney is not able to convert all consumer surplus into profit.
• B)Disney purposely charges less than the profit-maximizing price for admission to Disney World because it does not want to risk alienating its customers.
• C)Disney purposely charges less than the profit-maximizing price for admission to Disney World in order to earn more profit from sales of food, lodging, and other related services.
• D)Disney does not charge the profit-maximizing price for admission because it wants to keep admission affordable for children who will be more likely to visit Disney World when they become parents.

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Definitions:

Positive-Sum Game

In game theory, a game in which the gains (+) and losses (−) add up to more than zero; one party’s gains exceed the other party’s losses. A strategic interaction (game) between two or more parties (players) in which the winners’ gains exceed the losers’ losses so that the gains and losses sum to something positive.

Payoff Matrix

A table that shows the potential outcomes of different strategies in a strategic interaction, commonly used in game theory.

Oligopolistic Industry

A market structure characterized by a small number of large firms that dominate the market, often leading to limited competition and higher prices.

Differentiated Oligopoly

A market structure in which a few firms offer products that are similar but not perfect substitutes, allowing for some pricing power.