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First Term Paper - SOK1011 Markets and Market failures - Spring 2022 General instructions Submission deadline: Friday 4 March at 17:00 The term paper is
First Term Paper - SOK1011 Markets and Market failures - Spring 2022 General instructions Submission deadline: Friday 4 March at 17:00 The term paper is submitted as a PDF file via Blackboard, either individually or as a group of up to four people. In order to submit, you must be enrolled in a group for the term paper. This also applies if you submit on your own. Task 1 An amusement park is visited by families with equal demand for the park's services, which are carousel rides. The park has a monopoly on carousel rides in the area. Let r be the number of carousel rides and p price per trip. The demand curve is provided by: r = -ap + 50 The cost of a carousel ride is 40. a) Show which price the park will charge per carousel ride if it can not charge entrance fees. How many carousel rides will there be per family? b) Now suppose that the park can also charge entrance fees (B). What price will the park charge for entrance and what price per carousel ride? How many carousel rides will there now be per family? What will be the park owners' profit? Does this two-part tariff provide a socioeco- nomically better solution than just having a price per carousel ride? The park owner's daughter is studying economics. While taking a course in market theory, she gets the idea that the families visiting the park have different demand for carousel rides and that the park should offer two different price packages. These packages assume that families have the following demand curves: Large users : : = -p + 100 Small users : x = SP + 50As a fellow student, you participate in the discussion about the design of the packages. To do this, follow these steps: c) Find the consumer surpluses of the two types of family when P = 40 and calculate the park owner's profit given that he is able to capture the entire consumer surplus (from a large user and a small user). d) Explain that if the price packages offered are Package S: P = 40, B = 900, Xmax = 30 where Xmax is the maximum number of carousel rides and Package L: P = 40, B = 1800 the large users will choose the small-user package (Package S). e) Explain how B must be set for the large user to choose the large-user package (Package L). You can assume that the Xmax in the small-user package remains unchanged. f) Find the park owner's total profit from one small user and one large user
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