Explain why the correct answer is $ 15 on the multiple choice question. Select o

ID: 1160214 • Letter: E

Question

Explain why the correct answer is $ 15 on the multiple choice question.

Select one and explain your answer briefly. The Paramount movie theatre has a seating capacity of 270. On any given night, there are 180 people who would potentially attend a movie at the Paramount. There are 80 people who are willing to pay up to $15 to attend a movie at the Paramount, and there are an additional 100 people who are willing to pay up to S5 to attend a movie at the Paramount. The total cost (including movie rental, labor, and rent on the theatre) to the theatre owners of showing a movie at the Paramount is fixed at S800 per night no matter how many people watch the movie. A. If they must charge the same price to all buyers, what price should the owners of the Paramount charge for movie tickets in order to maximize their profits? a) $15 b) S5 c) S4.44 d) $10 e) $8.89

Explanation / Answer

Option a

With the different willingness to pay from different buyers, the total revenue and profit realised with all the four prices are shown in below table which confirms that at price of $15, the profit is maximum.

No of buyers

Price

Cost

Profit

1200

800

400

180

900

800

100

180

4.44

799.2

800

-0.8

800

8.89

711.2

800

-88.8