Assume you own a movie theater, and you would like to have senior discounts, but
ID: 1213344 • Letter: A
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
Case I - Senior Citizens
TR
(P * Q)
MR
(TRn - TRn-1)
A firm maximizes its profit when it produce that level of output at which marginal cost equals marginal revenue.
The above table shows that in case of senior citizens, profit-maximizing level of output is 3 units as marginal cost equals marginal revenue corresponding to this level of output. The price corresponding to this profit-maximizing level of output is $8.
So, senior citizens should be charged $8 per ticket.
Case I - Other customers
TR
(P * Q)
MR
(TRn - TRn-1)
A firm maximizes its profit when it produce that level of output at which marginal cost equals marginal revenue.
The above table shows that in case of other customers, profit-maximizing level of output is 4 units as marginal cost equals marginal revenue corresponding to this level of output. The price corresponding to this profit-maximizing level of output is $9.
So, others should be charged $9 per ticket.
Q PTR
(P * Q)
MR
(TRn - TRn-1)
MC 1 10 10 - - 2 9 18 8 6 3 8 24 6 6 4 7 28 4 6 5 6 30 2 6 6 5 30 0 6 7 4 28 -2 6Related Questions
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