Answer to Question #162653 in Microeconomics for Aleena Qasim

Question

PROBLEM #5

A ski resort in the White Mountains has conducted market and cost studies, and has determined that the demand and supply for ski-lift tickets at their resort are represented by: Qd=1750 - 5P - 8PR + 2PB; Qs=50 + 20P - 3PE. In these equations, P represents the price of a full-day lift ticket, in dollars per ticket; PR is the price of a ski-rental package; PB is the price of a pint of beer at the local pub in the nearby town; and PE is the price per megawatt hour for the electricity used to run the chair lifts on the ski slopes.

Based on the equations above, determine whether the beer in the local pub is a substitute or complement to skiing. Briefly explain your answer. Suppose the price of a ski-rental package is $20, the price of a pint of beer is $5, and the price of electricity is $150 per megawatt hour. Calculate equilibrium price and quantity of ski-lift tickets.

Now consider the more general relationship between the price of lift tickets and the price of ski-rental packages. Suppose the price of beer remains at $5, and the price of electricity is still $150 per megawatt hour, but that the price of a ski-rental package (PR) is variable. Find an expression for the equilibrium price of a ski-lift ticket as a function of the price of a ski-rental package. Confirm that your general equation is correct by verifying the price you found for a ski-lift ticket when the price of a ski-rental package is $20, above. Show your derivations clearly. 

Answer 1

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