A monopolist is about to open a new amusement park. A typical visitor is expected to take Q = 8- P rides, where P is the price of a ride. The marginal cost of a ride is two (MC = AC = 2).
1. Derive the typical visitors inverse demand function, where P is a function of Q, for rides. How much is a typical visitor willing to pay (reservation price) for a total of 4 rides?
2. The monopolist decides to practice a two-part tariff in the park. How much admission fee would she set and how much would she charge per ride? What will be the profit per visitor?
3. Now, she considers selling a package of tickets (each ticket is redeemed for one ride) instead of charging admission fee. How many tickets must be included in the package and what must the price of the package be?