5A. The graph below assumes the data in chart 3 “Ticket sales revenue is climbing steadily” by Pollstar was quoted in 2008 dollars and includes only the 100 highest-grossing tours. Supply/Demand Diagram for Changes in Market for Live Rock Concerts (1998-2008):
5B. Economists use cross elasticity of demand to determine whether two products are substitutes or complements. The cross elasticity of demand measures how quantity demanded of one good (albums) responds to a change in the price for another good (live concert tickets). For example, between 1998 and 2008, sales of albums were down 45%, but over the same period, concert ticket sales revenues more than doubled to $4.2 billion, despite rising rises. During this same time period, …show more content…
Free albums also encourage consumers to sample an artist’s music. In contrast, there are few, if any, alternatives to a live performance – listening to an album is not considered a substitute for a live concert. Additionally, most artists are unique and cannot be easily substituted by a different artist. Another factor to consider is resources (cash) – people who buy less albums have more cash to purchase a contract ticket.
6A. Economic profit equals net earnings, in the accountant’s sense, minus the opportunity costs of capital and any other inputs supplied by the firm’s owners. Bob and Jane’s economic profit is different from their accounting profit. Accounting Profit = Total Revenues – Total Costs = $8.0 mil - $7.4 mil = $.6 mil ($600,000). However, Economic profit = Accounting Profit ($600,000) - Opportunity Costs ($360,000) = $240,000. As also discussed in 6B, opportunity costs here include the wages they forfeit to run this business ($300,000),
PLUS a normal rate of return on the $600,000 paid up front for advertising (600,000*(.10)) or $60,000.
6B. A fixed cost is the cost of an input whose quantity does not rise when output goes up, one that the firm requires to produce any output at all. The total cost of such indivisible inputs does not change when the output changes. Any other cost of the firm’s operation is called a variable cost.
Fixed costs for Bob and Jane during their first year of operation is
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Fixed costs are what it costs a company to run before they make any products irrespective of the level of activity e.g. rent & rates, insurance, salaries, utilities.
The bigger companies like Warner Music Group, Universal Music Group, Song BMG Music Entertainment, etc., have the big dollars to promote all of their artists. Because the Internet has caught on, all of the music companies can promote everyone. Even the little companies can do this. Hopefully, the music industry will look at this as a blessing in disguise for the underground labels. Looking at this in the short-term of things, downloading music could hurt the music industry and their profits. However, later down the line, it will eventually benefit them. In a study done by Ipsos-Reid, it shows that 81% of the public that download music, often spend at least the same on records or even more than they did before downloading music from the Internet. The record industry must concentrate on offering value to the user and adapt to the publics needs (Vives, 2004). The music industry should try to realize that the ideas behind free downloads can benefit them. They should do what they can to market more from it, rather than turning their noses up at the technology behind it. They should realize that they waste more money on fighting the sites that offer free downloads and lobbing Congress to stop the downloading, they should build a system in which all music is readily available free. Making sites with easy to follow links to other online music store so that the people can buy music from the same place that they listen to it.
Both substitutes and complements affect the cross elasticity of demand, which is a measure of how much the quantity demanded of one good responds to a change in price of another good, computed as the percentage change in quantity demanded of the first good divided by the percentage change in price of the second good. Substitutes cause a positive relationship, while complements cause a negative relationship.
The $15,000 allocated marketing budget allows for a one week run in the business section, and a one week run in the entertainment section, with $971 remaining. Advertising in newspapers is the best way to reach the older demographic as they are less likely to be involved in social networks.
The income of these mainstream artists is more dependent on the number of sold out concerts and amount of merchandise sold than number of songs sold on iTunes. A person is more likely to buy concert tickets and merchandise if they listen and grow to like the music that an artist plays. Many people do not find paying $15 for an album is worth the money, when they can get it for free somewhere online. On the other hand, people will spend about $150 to attend a live concert of their favorite band. A utilitarian would say that because a person downloaded the music illegally, they grow fonder of a musician, and are more likely to go to a live concert and spend excess money on a ticket and merchandise.
The system was relatively profitable for these companies, but the revenues distributed unoften favoured the artist. Furthermore, the price of recording a song was high, requiring time in a professional music studio and since it is also costly to promote and distribute music, musicians were left with little choice but to sign with record labels.
Mike Batt said, “But there has been negative comment. Last week I read an article by an otherwise sane and respected musician and journalist who said that downloading music free was like "downloading air", implying that because you can't see it, it should be free. He also said that it is "so cheap to get recorded music to the audience that artists no longer need a major label". While it's true that you can't see it, he was definitely wrong in saying that it should be free. Artists work hard to make the music, it is their lifestyle. People generally like music and if they want to listen to it then they should pay for it, and if they don't want to pay for it maybe they shouldn’t listen to it. Music is a satisfaction, like any other form of entertainment in your household, so why shouldn't you pay for it. In reality, music does not cost that much money. With the money used to buy new jeans that will last one season, a consumer could buy at six albums that they can enjoy for a
The internet is the one media that brings up the most controversy in bands spreading their music. Whether they promote it or not their music is downloaded for free on the internet. Most bands do not like that their music is downloaded for free, but they can’t do much to stop it. In a way downloading music for free could bring the musicians even more money. If a person likes one of the songs they downloaded off of the internet they may be inclined to buy the entire album or at least the single. After the person buys the latest album they may even buy earlier albums from the same artist if they like the music enough. The internet has
All the costs by a company can be broken into two categories, fixed costs and variable costs. Costs that are independent of output are called fixed costs. Fixed costs remain constant throughout the relevant range and are usually considered sunk for the relevant range. Buildings and machinery are included inputs that cannot be adjusted in the short term. They are only fixed in relation to the quantity of production for a certain time period. The cost of all inputs is variable, in the long run.
Customers no longer feel obliged to pay for music they do not want and individually purchase tracks or even listen to music online without making any purchase.
Fixed costs are those which do not change with the level of activity within the relevant range. These costs will incur even if no units are produced. For example rent expense, straight-line depreciation expense, etc.
Elasticity of demand is shown when the demands for a service or goods vary according to the price. Cross-price elasticity is shown by a change in the demand for an item relative to the change in the price of another. For substitutes, when there is a price increase of an item, there is an increase in the demand for another item. When viewing complements, if there is an increase in the price of an item, the demand for another item decreases. Income elasticity is shown when there is a change in the demand for a good relative to a change in income. This concept is shown in how people will change their spending habits when their income levels change. For
Adding to the already competitive entertainment market is the invention of online music and peer-to-peer file sharing programs such as Napster, Limewire, and Itunes. The teenage market, which contributes a majority of the entertainment income, can use programs like Napster to download movies and games to entertain themselves at little or no cost, so paying $9 to watch a movie becomes even less attractive when you can "watch it for free."