Question

Base 2. Read the section Economics of Pool Operations (p. 7) in the Williams Lake and District Pool feasibility study. (a) Based on the information in this section, do you expect the average cost per swim to be increasing, decreasing or U-shaped for the described capacities?
Economics of Pool Operation The consultants then separated the costs and revenues from the dry land fitness activities and calculated the pool costs and revenues as they relate to pool uses. The 132,200 swims resulted in user revenue of about $305,443 in 2011. That equates to an average of about $2.31 per swim. The total cost of providing those swims is $995,280. That equates to about $7.53 per swim. The recovery rate (i.e. the operating revenue expressed as a percentage of operating cost) is 31% and the net subsidy per swim is $5.22. This cost per swim, revenue per swim, recovery rate, and rate of subsidy are all quite typical in BC. The 3680 sq. ft. main tank of the Sam Ketcham pool has an annual capacity for swimming equal to roughly 174,000 swims. Therefore the current usage level of 132,200 represents about 76% of capacity. Because almost 70% of pool operating costs are fixed (i.e. it costs about the same per hour to operate a pool with two swimmers as it does to operate a pool with 40 swimmers), and because all pool revenue is variable (i.e. revenue varies directly proportional to total use), a pool which operates close to full capacity almost always has a much higher recovery rate than a pool which operates at a lower proportion of capacity. In other words, if use of the Sam Ketcham pool were to increase from 76% of capacity to, say, 85% of capacity, the additional swims would bring in more revenue than they would add to the operating cost, resulting in a lower operating deficit, and a reduced average deficit per swim. However, the consultants believe that the only way to increase the number of swims in this pool would be to improve the quality of the aquatics experience significantly, and that typically means adding some amenities that will attract the additional users and uses. Adding the attracting amenities will increase capacity and increase operating costs. However, it may not increase operating costs proportionately. In other words, adding new, more attractive, aquatic amenities to increase use may be financially feasible. This will be tested in a subsequent section of this report

Answer 1

Based on the information in the Williams Lake and District Pool feasibility study, I expect the average cost per swim to be B. decreasing.

What is the average cost?

The average cost is the unit cost recovery amount because it divides the total cost (fixed and variable) by the total units produced.

The average cost decreases when the fixed cost significantly exceeds the variable cost.

The annual capacity of swimming = 174,000 swims

85% of annual capacity = 147,900 (

                                       Current Capacity   Proposed Capacity

Total number of swims         132,200             147,900

Total user revenue            $305,443           $341,649 (147,900 x $2.31)

Average revenue per swim     $2.31                  $2.31

Average cost per swim           $7.53                  $7.53

Total cost                          $995,280           $1,113,687 (147,900 c $7.53

Recovery rate                             31%                      31%

Thus, I do not expect the average cost per swim to increase or be U-shaped with increased capacity but to be Option B.

Learn more about average cost behaviors at brainly.com/question/25799822

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