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The Snow City Ski Resort caters to both out-of-town skiers and local skiers. The demand for ski tickets for each market segment is independent of the other market segments. The marginal cost of servicing a skier of either type is $12. Suppose the demand curves for the two market segments are:
Out of town: Qo = 60 - P
Local: Ql = 60 - 2P
a. If the resort charges one price to all skiers, what is the profit-maximizing price? Calculate how many lift tickets will be sold to each group. What is the total profit?
b. Which market segment has the highest price elasticity at this outcome? Explain.
c. If the company sells tickets at different prices to the two market segments, what is the optimal price and quantity for each segment? What are the total profits for the resort?
d. What techniques might the resort use to implement such a pricing policy? What must the resort guard against, if the pricing policy is to work effectively? Explain effective pricing strategies.
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