Assume you own a movie theater, and you would like to have senior discounts, but

Question

          

Assume you own a movie theater, and you would like to have senior discounts, but still maximize profits for your company. Assume that you have constant marginal costs of $6. The table below shows the various schedules of prices and quantities demanded for both senior citizens and other customers. What price should you charge senior citizens, and what price should you charge others?

    Senior Citizens                    Other Customers

Quantity

Price

Quantity

Price

1

$10

1

$12

2

$9

2

$11

3

$8

3

$10

4

$7

4

$9

5

$6

5

$8

6

$5

6

$7

7

$4

7

$6

Quantity

Price

Quantity

Price

1

$10

1

$12

2

$9

2

$11

3

$8

3

$10

4

$7

4

$9

5

$6

5

$8

6

$5

6

$7

7

$4

7

$6

Explanation / Answer

TR = P*Q

and, MR = TRN - TRN-1

NOW, a firm chooses its level of output by equating MR to MC

GIven that MC = $6,

FOR senior citizens, MR = $6 = MC at Q1 = 3 and P1 = $8

and for adults, MR = MC at Q2 = 4, and P2 = $9

Q1 P1 TR1 MR1 Q2 P2 TR2 MR2 1 10 10 - 1 12 12 - 2 9 18 18-10 = 8 2 11 22 22-12 =10 3 8 24 6 3 10 30 8 4 7 28 4 4 9 36 6 5 6 30 2 5 8 40 4 6 5 30 0 6 7 42 2 7 4 28 -2 7 6 42 0

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