Group Assignment on Variable Pricing

In January, NICCO Park can serve up to 1000 customers per day. It charges a single admission price, and all rides are
free after admission. During winter, demand follows a predictable pattern, with higher demand at weekends than
during weekdays. We assume that demands for different days of the week are independent. Assume a linear price
response function and zero incremental cost per customer.

To create price response functions, Ms. Yadav, the sales manager of the NICCO Park, has collected uncapacitated
demand data for 30 weeks in January for the past few years (refer to the supporting data sheet in Excel). As a
manager, Ms. Yadav needs to answer the following questions.

A) Should you set a common price for all days in a week? If yes, what should be the profit-maximizing common
price?
B) Will you gain more by going for variable pricing? If yes, what would be the optimal prices for each day of a week?
What is the increase in profit because of the variable pricing vis-à-vis common pricing?
C) You think that varying the price everyday will not be feasible and hence you are planning to set a price for
weekdays (Monday to Friday) and a different price on weekends (Saturday and Sunday). Analyze this pricing
mechanism in detail by comparing it with common and variable pricing mechanisms.
D) What is your insight about the impact of various pricing mechanisms on the utilization of the park considering a
capacity of 1000 customers?

Next, the management asked Ms. Yadav to see the possibility of expanding the capacity of the entertainment
park. Capacity expansion will incur a one-time cost. Management requested Ms. Yadav to come up with a
tentative cost estimate and asked her to plan to recover the expansion cost in the next one year from the
additional revenue that the Park is supposed to realize due to this capacity expansion. Ms. Yadav understands
that there are many levers influencing her decisions in this regard. The capacity of the park is simply defined as
the number of customers who can be admitted in a day, which has a current capacity of 1000. How far this
capacity should be expanded? Will this expansion really lead to an increase in revenue? Does the expansion
decision depend on her selection of pricing mechanism? Ms. Yadav needs some expert advice to bring clarity to
this situation and more specifically, to answer the following question.

E) If you are asked to recommend the change in capacity, what would be your recommendation?

A colleague of Ms. Yadav gave the following cost estimate (INR in thousands) for the capacity expansion.

Increase in
100 200 300 400 500 600 700 800 900 1000
Capacity
Additional Cost
100 250 500 800 1150 1550 2000 2500 2500 2500
(in ‘000 INR)