Mountain Run operates a Rocky Mountain ski resort. The company is planning its lift ticket pricing for the coming ski season. Investors would like to earn a 12% return on investment on the company’s $111,000,000 of assets. The company primarily incurs fixed costs to groom the runs and operate the lifts. Mountain Run projects fixed costs to be $37,000,000 for the ski season. The resort serves about 680,000 skiers and snowboarders each season. Variable costs are about $8 per guest. Currently, the resort has such a favorable reputation among skiers and snowboarders that it has some control over the lift ticket prices.
Requirements
1. Would Mountain Run emphasize target pricing or cost-plus pricing? Why?
2. If other resorts in the area charge $80 per day, what price should Mountain Run charge?