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SteamScot is a privately run rail company, which provides steam train journeys in Scotland. At present they operate three specific rail journeys in various parts of Scotland. These journeys are aimed at the tourist market and operate throughout the summer months. Around 70% of passengers are domestic tourists with the other 30% overseas visitors.
The company has been fairly profitable over the last decade, and with the help of various grants available, they are considering an expansion of its operations. However, it is also aware that within the next five years a major overhaul of its capital stock as well as major repairs will have to be undertaken. It is this dilemma that the board of the company faces.
It is estimated that in the coming year it will have ￡.5 million to spend. This money could be used to open a new line between Inverness and Fort William, or to begin the repair and replacement plan on its current routes.
A recent report has highlighted that following recent terrorist threats, visitors from the USA are expected to fall within the next three years, but that European visitors are likely to increase as the Euro rises in value. It is also expected that Visit Scotland (the tourist organisation) will mount a major advertising campaign in England to encourage more visitors from that country.
The board of directors of SteamScot are also considering a change in their pricing but are unsure if this is a wise move. At present the average price of a journey is ￡4 and 60,000 tourists use the services. A report commissioned by the board on price, supply and demand is shown on the following table.
Price of tickets Quantity demanded Quantity supplied
￡6 20,000 100,000
￡5 40,000 80,000
￡4 60,000 60,000
￡3 80,000 40,000
￡2 100,000 20,000
￡1 120,000 0
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