(I already know the answer, I\'m looking to see how to solve it, SO PLEASE SHOW
ID: 2440221 • Letter: #
Question
(I already know the answer, I'm looking to see how to solve it, SO PLEASE SHOW WORK)
A movie theater is showing two different movies: a Hollywood blockbuster (with 100 customers willing to pay $10 for a ticket, and 100 willing to pay $8) and an independent film that attracts 300 film buffs, willing to pay $20 each. Marginal cost is zero and neither movie can fill theater capacity. What is the theater's maxim profit if it cannot price discriminate (it must charge the same price for both movies) and if it can price discriminate (it may charge different prices for different movies)?
a. $4,000 ; $10,000
b. $4,000 ; $5,600
c. $6,000 ; $7,000
d. $6,000 ; $7,600
Explanation / Answer
A single price monopolist has three prices to choose from, $8, $10 and $20. For $8, all (100 + 100 + 300) consumers will buy and so the profit is $8*500 = $4000. But if the price is $20, only 300 consumers will buy and profit is $20*300 = $6000. Hence a single price monopolist must charge a price of $20, thereby attracting only independent film audience
When price discrimination is possible, $20 for an independent film is still the best choice and $8 for the Hollywood movie will attract 200 audience. Total profit will be $20*300 + $8*200 = $7600.
Hence option D is correct.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.