(Solved Homework): You need to devise a pricing scheme for ferry ticket prices in Seattle. There are three routes with…

You need to devise a pricing scheme for ferry ticket prices in Seattle. There are three routes with the following people per day:

Start Finish Number of People per Day roundtrip
Seattle Bainbridge 5,847
Seattle Tacoma, WA 3,243
Bainbridge Tacoma, WA 746

Each route sells a round trip ticket. It costs $20 million per year to operate this system of ferries. You need to develop a pricing scheme to charge per roundtrip ticket that recoups (and only recoups) the cost of operating the ferry system and that seems fair so that you can present it to city council at their big meeting with top city officials and journalists and town members there. Note, you cannot make a profit: you must recoup exactly $20 million.

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Present a couple of options for ticket pricing in power point, and explain the tradeoffs among the systems, and possible public reception to the different systems. The powerpoint slides should be directed at people who know nothing about supply chain (i.e., the public and the city council). Your system should be flexible enough such that if the total cost to run the system goes up to $22 million, you can easily recalculate the new ticket prices and no one will be surprised at how you go there. Include a slide with this possibility also, and the related ticket prices. Also, for each pricing scheme, include the actual mathematical formula within the slide.

Think about what is fair? Different people have different definitions of fair. Is it dependent on how far people need to go? Is it dependent on the average cost-per-person to operate a given lane? Is it that everyone pays an equal amount? Your different approaches that you present may want to touch on different definitions of fairness, as this is subjective. But given a definition of fairness, you need to mathematically translate this into a formula.

For instance, if your definition of fairness is that those who travel farther should pay more, you may want to make your prices related to, but not totally dependent on, distances among cities. One way to do this is to write price as a function of distance. Alternatively, should some people pay more because fewer people are on the boat and the fixed price has to be spread among fewer people? Think about the equations you know (e.g., y=mx+b or others) for good candidates. Also think about whether some things (like distance) might make the price bigger or other things (like number of people on the boat) may make the price smaller.

Remember, your prices have to be defendable and transparent. Using an equation is one way to be transparent so that you can just publish the equation in the newspaper. Thus, you must have at least 2 equations that can be published in the newspaper. To get the distances, look for some websites that tell you as-the-crow-flies distances, or use some other means that makes sense.

Turn in the slides and the spreadsheet. The slides should be in one tab, and the spreadsheet(s) should be in one or more tabs depending on how you construct your model.

Note: this is intentionally vague and ambiguous. Imagine it’s your first week at the job and this is your task. Make decisions as if you were the boss’ boss: what would you want to see, and what criticisms would you make on your work that you’re turning in.

Expert Answer

Given the constraints of running the ferry service as a purely non-profit venture with the sole aim of recovering the running costs, I have formulated a simple pricing scheme along with certain assumptions which are outlined in the attached screenshot.

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