An amusement park is considering changing its pricing system from a pay- per-ride system to a single entrance fee entitling the entrant to unlimited rides. Assume that the park is not close to approaching the attendance capacity. The marginal value for rides for the typical entrant is listed below:

Quantity Marginal value

1 2.50

2 2.00

3 1.50

4 1.00

5 0.50

6 0.10

7 0.00

a) Assuming that the marginal cost is zero to provide the rides to those in attendance, what is the best pay-per-ride price (consider only 50 cent increments)?

b) What is the profit maximizing entrance fee?

c) Under which system are profits higher?

d) Under which system is ride usage higher?

e) If, instead, the marginal cost of providing a ride were $0.30, what revision in the pricing scheme, if any, would you suggest?