Question

Two new rides are being compared by a local amusement park in terms of their annual operating costs. The two rides would generate the same level of revenue (thus the focus on costs). The Tummy Tugger has fixed costs of $10,000 per year and variable costs of $2.50 per visitor. The Head Buzzer has fixed costs of $4000 per year and variable costs of $4 per visitor. Provide answers to the following questions so the amusement park can make the needed comparison. (a) Mathematically determine the breakeven number of visitors per year for the two rides to have equal annual costs.

Answer 1

The indifference point is 4,000 visitors.

Step-by-step explanation:

Giving the following information:

The Tummy Tugger has fixed costs of $10,000 per year and variable costs of $2.50 per visitor. The Head Buzzer has fixed costs of $4000 per year and variable costs of $4 per visitor.

First, we need to determine the cost equation for each option:

Tummy= 10,000 + 2.5X

Head= 4,000 + 4X

X= number of visitors

Now, to determine the indifference point, we need to equal the formulas and isolate X.

10,000 + 2.5X= 4,000 + 4X

6,000= 1.5X

4,000= X

To prove it:

Tummy= 10,000 + 2.5*4,000= $20,000

Head= 4,000 + 4*4,000= $20,000

The indifference point is 4,000 visitors.