11. Suppose a monopoly team faces demand for a sporting event of Q = 100 ? P. Th
ID: 1224222 • Letter: 1
Question
11. Suppose a monopoly team faces demand for a sporting event of Q = 100 ? P. The associated marginal revenue function is MR = 100 ? 2Q. If marginal cost is zero, what are the optimal quantity (of tickets) and price per ticket? If fixed costs are $500, what would the level of profit be?
12. Suppose that most fans prefer Sunday afternoon baseball games (regardless of opponent) to all other types of games. Describe two pricing strategies that a team could use to increase profits based on this difference in demand.
13. Suppose over five seasons, the order of finish for five teams in the West League and the East League is as follows. Use the HHI to determine which league has better competitive balance across seasons.
Explanation / Answer
(11)
A monopolist maximizes profits by equating marginal revenue (MR) with Marginal cost (MC).
Q = 100 - P
P = 100 - Q
Total revenue (TR) = P x Q = 100Q - Q2
MR = dTR / dQ = 100 - 2Q
Equating with MC:
100 - 2Q = 0
2Q = 100
Q = 100 / 2 = 50
P = 100 - Q = 100 - 50 = 50
Profit = Total revenue - Total cost = (P x Q) - [(Q x MC) + FC]
= (50 x 50) - [50 x 0 + 500]
= 2,500 - (0 + 500) = 2,500 - 500
= 2,000
Note: First question is answered.
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