Select one and explain your answer briefly (show work). The Paramount movie thea

Question

Select one and explain your answer briefly (show work). The Paramount movie theatre has a seating capacity of 270. On any given night, there are 180 people who would potentially attend a movie at the Paramount. There are 80 people who are willing to pay up to $15 to attend a movie at the Paramount, and there are an additional 100 people who are willing to pay up to $5 to attend a movie at the Paramount. The total cost (including movie rental, labor, and rent on the theatre) to the theatre owners of showing a movie at the Paramount is fixed at $800 per night no matter how many people watch the movie A. If they must charge the same price to all buyers, what price should the owners of the Paramount charge for movie 2. tickets in order to maximize their profits? a) $15 b) $5 c) $4.44 d) $10 e) $8.89 B. Suppose all those people who are willing to pay no more than $5 are students. The theatre decides to offer a $10 discount to anyone with a student ID. What will the total profit of the theatre be? d) $1200 a) $100 b) $400 c) $900 e) $1700

Explanation / Answer

2)
a) 270 is the seating capacity
180 are the potential movie watchers

80 would pay 15$ and 100 more would not pay more than 5$
Overhead charges = 800$ per night

if the price is 5$ - both 100 member grp and 80 member grp will attend
Revenue = 180 * 5 = 900
If the price is 15$ - 80 members will attend
Revenue = 80 * 15 = 1200

So paramount would price the tickets at 15$ to get more revenue

b) If they give discount to the students then the
Revenue = 80 * 15 + 100 * 5 = 1200 + 500 = 1700

3)

a) Nash Equilibrium for a side is a strategy which for a side would be the best move against any strategy of the competitor. Hence the (low price, low price) move is the best either companies can move against their opponent.

b) Out of the 4 situations the maximum outcome would be 24m at (high price, high price). So the companies could and set this strategy to earn 12m each.

But this would be difficult to run for a long time. Either of the company may switch their strategy to a low price and earn 16m while the other would only get 8m. So this strategy is too delicately placed and any move would in the end return us to the Nash equuilibrium situation

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