Managerial Economics BA 445 Homework Questions A.3 Elasticity and Revenue Questi

Question

Managerial Economics BA 445 Homework Questions A.3 Elasticity and Revenue Question 2: You are managing ticket sales for Creedence Clearwater Revisited at the Ventura County Fairgrounds. You pay the Fairgroundsa $1,000 fee to hold the concert. You figure the $1,000 fee is the only cost to you of holding the concert. You are left with the choice of how much to charge for each ticket. Your marketing department estimates that the demand for the concert is Q = 750-50 P, with P measured in $. What price should you charge? What demand quantity should you expect? What profit should you expect? What is your own-price elasticity of demand? Answer to Question: 0-750-50P

Explanation / Answer

Q=750-50P

for equilibrium , MR=MC

total cost (TC) is fixed at $1000

marginal cost (MC) = $0

Marginal revenue ( MR) = d(TR)/d(P)

now, TR = price *quantity = P( 750-50P)

therefore, MC= 750-100P

at, MR=MC  

750-100P = 0

P= $7.5

demand (Q) = 750 - 50P = 375

profit = total revenue (TR) - total cost (TC)

TR = P *Q = 7.5*375 = 2812.5

TR-TC= 2812.5-1000 =1812.5

profit = $1812.5

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