Suppose That 3,500 People Are Interested in Attending ElvisLand

question 3

Multiple Choice

Suppose that 3,500 people are interested in attending ElvisLand. Once a person arrives at ElvisLand, his or her demand for rides is given by x = max{ 2 - p, 0} , where p is the price per ride. There is a constant marginal cost of $1 for providing a ride at ElvisLand. ElvisLand charges a profit-maximizing two-part tariff, with one price for admission to ElvisLand and another price per ride for those who get in. How much should it charge per ride and how much for admission?

• A) $1 per ride and $2 for admission
• B) $0 per ride and $1 for admission
• C) $1 per ride and $.50 for admission
• D) $0 per ride and $1.50 for admission
• E) $2 per ride and $2 for admission

---

Definitions:

Fixed Component

A cost or value that remains unchanged regardless of the level of output or activity, such as rent or salaried wages.

Mixed Cost

A cost that contains both variable and fixed cost elements, changing in total with changes in activity level but not in the same proportion.

Electrical Cost

The financial outlay for electricity usage, often a significant part of operational expenses for businesses and households alike.

Contribution Margin

A financial metric that represents the difference between a company's sales revenue and its variable costs. It is used to analyze the profitability of individual products.