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ECON 3310 – Microeconomics Spring 2021 – David Quigley

Group Report 1 – Due Monday, Feb. 22nd

Write a minimum of 4 pages, double-spaced, answering the questions below. If you include figures, those count towards the page minimum. Be as specific as possible and always include explanations that describe your reasoning.

Suppose you’re writing a report for the CEO of a theme park entertainment company. The CEO has the following questions she would like analyzed and answered as well as possible.

1. The company is considering building and opening a new theme park. The revenue from the new theme park depends on the demand for theme park entertainment. How does the Law of Diminishing Marginal Utility relate to the Law of Demand in shaping the relationship between price and the quantity demanded for theme park entertainment?

2. The CEO would like more information on the total costs of building the new theme park. A part of those total costs are opportunity costs. What are some alternatives that might go into the opportunity cost calculations and explain how you might go about calculating the opportunity cost (e.g., for those alternatives, what information might you need to figure out how those alternatives contribute to the opportunity cost of the project).

a. What might be some sources of sunk costs for this project and explain how timing affects the consideration of sunk costs.

3. Price Elasticity of Demand and Supply are useful for market analysis. The CEO would like to know whether you think the Price Elasticity of Demand for theme park entertainment is elastic or inelastic and why? Furthermore, she would also like to know whether you think the Price Elasticity of Supply for theme park entertainment from competitors is elastic or inelastic and why? What factors affect these price elasticities?

4. Suppose a global pandemic makes people wary of congregating in large groups. How would this impact the market for theme park entertainment? How would this impact the profitability of the company’s new theme park? If price of steel used in constructing theme park attractions is going down at the same time, how does this impact the market and the profitability of the new theme park?

5. Due to political pressure, the government imposes a binding price ceiling on theme parks. How does this impact the market for both consumers, producers, and economic efficiency, and what are the potential impacts on the company’s new theme park?