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A one day ticket to Sea World cost $37, but a two day pass costs $42.  What is the...

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yaga49 | (Level 1) Valedictorian

Posted May 16, 2013 at 1:59 PM via web

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A one day ticket to Sea World cost $37, but a two day pass costs $42.  What is the marginal cost of a second day at Sea World? Why might Sea World charge such a price for a second day's entrance to the park?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted May 16, 2013 at 2:20 PM (Answer #1)

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The term “marginal” is used a great deal in economics.  It refers to the extra amount of something (in this case, costs) that come about because of an increase in something else (in this case, days at Sea World).  Put differently, the marginal cost of a second day at Sea World is the difference between the price for admission for the first day and the price for admission for the second day.  The marginal cost of going on the first say is $37 because zero days cost $0 while one day costs $37.  Given that the two-day pass costs $42 and $42 is $5 more than $37, the marginal cost for the second day is only $5.

There are a number of reasons why Sea World might do this.  Let us look at the two most important.  First, it may be worth it to Sea World to ensure that it attracts more visitors.  By offering the lower price, Sea World gets more total visitors than it would if it charged $37 for each day.  Second, and somewhat relatedly, Sea World is likely using the admission price as something of a “loss leader.”  In other words, it takes a bit of a loss on letting people in because it feels that it will make more profit from them once they decide to come to the park. They will charge for parking. They will charge for extras like getting to feed the dolphins. They will sell t-shirts and lots of other kinds of souvenirs.  All of this will make it worth it to them to offer a very low admission price.

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