Economic environment of business assignment

Will biddefords tramway make a return? straits 1The central focus of this case is how Biddiford ropeway Company, under the management of bloody shame Jo and Marty, can increase revenue and become advantageous given the product line line constraints it must operate under, namely (a) Loss of $0.15 subsidy per passenger from the conjure up of Maine (b) Not increase the price of tram fare above $2.00 for deuce years and subsequently not above the rate of inflation. The railway tram would have to find a way to increase revenue to pinnacle the loss of the $0.15 subsidy, provide a return on their investment patch keeping the average fare at $2.00 during the season for two.Other notable business ch eitherenges to be addressed were (a) The agreement the authorities had with the topical anesthetic dole out inwardness to keep manning levels high at Biddiford tram company. (b) Mary Jo and Marty had been instructed to charge all passengers including children, a flat fee such(prenominal ) that children were not to be offered a discount on the fare. (c) A potential marketplace in the local visitors who were very price-sensitive.QUESTION 2Option A Shorten the season and concentrate on trim cost (See Excelsheet OPTION A)If it was practicable, Option A would be a profitable route for Biddiford Tram Company to pursue. However, this option is not a operable one for the following reasons.1. There are businesses in Old woodlet Bay which depend on visitors at all times and not only at peak season because they are not seasonal worker businesses. Operating the Tram only at peak season would be detrimental to their business because they do depend as well on customers that come in the off-peak season.2. Shortening the season would displease the local trade union of the tram drivers because manning levels and therefore wages would be greatly touch on by this. It would almost certainly lead to a dispute in the first two years and may hurt business locomote forward.3. For th e first two years at least, Biddiford Tram Company is nonoperational owned by the State of Maine and therefore a public service. It would be difficult to get approval from the authorities to shorten the season. The Trams and Old woodlet Bay are the communitys top selling points. It wont work.QUESTION 3Option B Use market power to increase passenger revenue across the seasonWhat Mary Jo core by having market power is that she understands that Biddiford Tram Company is a monopoly. A monopoly can either increase price or vary confer at a time but not both. Therefore, in this case, Biddiford Tram can increase its fare within the constraints it was given. The nature of a monopoly is such that the company is the only provider of that service and thus, it can segment its market. Hence, the off-peak fares for when in the main locals give use the tram service and peak fares for when mostly out-of-town visitors use it. This option allows Mary Jo to remain price-competitive and at the sa me time, encourage as much of the market as possible.Year One and Year 2 respectively (Option B)Total Cost (TC) = TVC + TFC pelf = Revenue TCTFC = $330,528 aid of $0.15 per passenger = (0.15 x 483336)TVC = VC + (0.15 x 483336) = 466353 + 72500 = $538,853Profit = $1,057,725 ($330,528 + $538,853) = $188,344Year Three Total Cost (TC) = TVC + TFC Profit = Revenue TCTFC = $330,528 Subsidy of $0.15 per passenger = (0.15 x 483336) TVC = VC + (0.15 x 483336) = 466353 + 72500 = $538,853Profit = $1,077,557 ($330,528 + $538,853) = $208,176Year Four Total Cost (TC) = TVC + TFC Profit = Revenue TCTFC = $330,528 Subsidy of $0.15 per passenger = (0.15 x 483336)TVC = VC + (0.15 x 483336) = 466353 + 72500 = $538,853Profit = $1,099,167 ($330,528 + $538,853) = $229,786Option B will yield good returns for Biddiford Tram and make most of the season and market.