You have achieved a dream job working for the Toledo Mud Hens. Remembering what

Question

You have achieved a dream job working for the Toledo Mud Hens. Remembering what you learned in Sports Economics, you managed to estimate the demand for general admission tickets as follows.

Price                Tickets

$27                  0         

$24                  1,000

$21                  2,000

$18                  3,000

$15                  4,000

$12                  5,000

$9                    6,000

$6                    7,000

The marginal (and average) cost of selling a ticket is $2. Other fixed costs per game equal $25,000. Finally, seating capacity is 7,000.

1)  What is the profit maximizing price? (Pick a multiple of $3.)   

2)How many tickets will be sold at that price?

3) Compute the profits. (revenues – costs) (costs = $2 per ticket + fixed costs)

4) Suppose that the East stands collapse, and capacity falls to 3,000. What price do you recommend?

5) Now suppose that the West stands are judged to be unsafe, and capacity shrinks to 1,000. What price do you recommend?

Explanation / Answer

1. From the above table we can determine the price at which promit is being maximzed. That is $15

2.At profit maximizing price 4000 tickets will be sold

3.Profit for respective prices are given in the table. The maximum profit is $27000.

4. If the capacity falls to 3000 the profit maximizing price would be $18 and maximum profit would be $23000.

Price (P) Tickets (Q) Total revenue(TR)=P*Q TC=2Q+25000 Profit=TR-TC 27 0 0 25000 -25000 24 1000 24000 27000 -3000 21 2000 42000 29000 13000 18 3000 54000 31000 23000 15 4000 60000 33000 27000 12 5000 60000 35000 25000 9 6000 54000 37000 17000 6 7000 42000 39000 3000

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