Dizzyland Amusement Park is a monopoly that charges for ride tickets. There is n

Question

Dizzyland Amusement Park is a monopoly that charges for ride tickets. There is no fence around the park and anyone can walk in. Dizzyland is considering building a fence so that they can charge admission. Answer the following questions on the assumption that all Dizzyland customers are identical: a) Use a graph to illustrate the maximum amount Dizzyland would be willing to pay for a fence. b) Use your graph to illustrate the maximum amount that Dizzyland’s customers would pay to prevent the building of the fence. c) If the fence can be built for free, does it increase or decrease socail gain? By how much? d) If the fence can be built at the cost you calculated in part b), does the fence increase or decrease social gain? By how much?

Explanation / Answer

a) Use a graph to illustrate the maximum amount Dizzyland would be willing to pay for a fence.
Dizzyland would incur some cost now in order to earn in future. And since it is his monopoly, customers will be willing to pay for the services of Dizzyland. The cost could be upto 30% of his current maintenance charges without any fence.

b) Use your graph to illustrate the maximum amount that Dizzyland’s customers would pay to prevent the building of the fence.
The customers will be readily agree to pay the entrance charges as the service is good which they have already experienced. Extra charges means better services to them. May be 20% charges would be fine with customers.

c) If the fence can be built for free, does it increase or decrease social gain? By how much?
If the fence can be built for free, social gain will definitely increase as the society will not pay but only gain from it.

D) If the fence can be built at the cost you calculated in part b), does the fence increase or decrease social gain? By how much?
Social gain go down by 20% considering 100% was previously social gain without paying entrance fees.

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