6. Problems and Applications Q6 You live in a town with 300 adults and 200 child
ID: 1110241 • Letter: 6
Question
6. Problems and Applications Q6 You live in a town with 300 adults and 200 children, and you are thinking about putting on a play to entertain your neighbors and make some money A play has a fixed cost of $2,000, but selling an extra ticket has zero marginal cost. Here are the demand schedules for your two types of customers: Price Adults Childrern (Dollars) (Tickets) (Tickets) 0 0 0 0 18 16 14 12 10 8 25 50 100 150 200 300 300 300 300 300 0 25 50 100 150 200 4 2 To maximize profit, you would charge$ for an adult's ticket and$ for a child's ticket. Total profit in this case would be The city council passes a law prohibiting you from charging different prices to different customers Now you set a price of$ for all tickets, resulting in in profit.Explanation / Answer
As the fixed cost of the play is $2000. I can not show any play if my revenue is below this point. Coming back to the question.
To maximise profit I would charge $8 for an adult and get 300 adult viewers and $4 for children and get 100 children as viewers. This will give me a profit of (P = TR - C)
TR = 2400 + 400 = 2800 , Total Cost = 2000
P = 2800 - 2000 = 800.
After the laws prohibiting price discrimination were passed the New price will be $6 I will get 300 adult viewers and 50 children And the profit will only $100. (1800 + 300 = 2100 - 2000 = 100.)
After the law passed adults are better off because they were paying $8 before this. Children are worse off because now they have to pay $2 more, I am worse off because my profit has decreased by $700.
IF the fixed cost of the play was $2600.
With price discrimination price for adult will be $8, Price for children will be $4 and the profit will decrease to $200
If price discrimination were banned the price would be $6 but I will be facing a loss of $500. (No profit in this case)
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