The Kelly Theater produces plays and musicals for a regional audience. For a typ
ID: 1124853 • Letter: T
Question
The Kelly Theater produces plays and musicals for a regional audience. For a typical performance, the theater sells at least 250 tickets and occasionally reaches its capacity of 600 seats. Most often, about 450 tickets are sold. The fixed cost for each performance is normal with a mean of $2,500 and a standard deviation of $250. Tickets cost $50. The theater runs 160 performances per year and incurs an annual fixed cost of $2 million. Develop a simulation model to evaluate the profitability of the theater. What is the distribution of net profit and the risk of losing money over a year?
Explanation / Answer
Price of a theatre ticket= $50
Min tickets sold= 250
Max tickets sold=600
Most often tickets sold=450
Cost ptice of total tickets under the above mentioned three scenarios:
Min=$50*250=$12,500 Annual equivalent given 160 performances a year, =$12,500*160=$2,000,000
Max=$50 *600=$30,000 Annual equivalent= $30,000*160= $4,800,000
Most often= $50 *450= $22,500 Annual equivalent= $22,500*160= $3,600,000
Annual fixed cost= $2,000,000
So the profit( Revenue-Cost) will range from 0( Min) to 2,800,000 (Max) with the most often value taking $1,600,000 as the profit figure.
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