1. Angelika and Village Screen are two independent movie theaters located close to each other in Manhattan. They are similar theaters that screen the same films at the same show times. They both sell only movie-popcorn combos. Since the two theaters have essentially identical offerings, customers always prefer to go to the theater with the lower price. (If they charge the same price, the they will split the market equally.) There are 1500 potential moviegoers every day, and each of the is willing to pay up to $16 for a movie-popcorn combo. It is also known that each theater has 1800 seats, and the marginal cost of a movie-popcorn combo for each theater is $9. Suppose that each theater takes a short-run perspective and only wants to maximize each day's profits, and that no theaters are going to shut down in the short run. a) What is the appropriate economic model to study price competition in this market? b) Ifyou use Nash equilibrium to make a prediction, what is the price that each theater will charge c) Give two ways by which the theaters could earn more than predicted in b). d) Angelika signs new contracts with its concessions suppliers, which results in a reduction of its marginal cost to SS How will vour predietion in b)change?
1. Angelika and Village Screen are two independent movie theaters located close to each other in Manhattan. They are similar theaters that screen the same films at the same show times. They both sell only movie-popcorn combos. Since the two theaters have essentially identical offerings, customers always prefer to go to the theater with the lower price. (If they charge the same price, the they will split the market equally.) There are 1500 potential moviegoers every day, and each of the is willing to pay up to $16 for a movie-popcorn combo. It is also known that each theater has 1800 seats, and the marginal cost of a movie-popcorn combo for each theater is $9. Suppose that each theater takes a short-run perspective and only wants to maximize each day's profits, and that no theaters are going to shut down in the short run. a) What is the appropriate economic model to study price competition in this market? b) Ifyou use Nash equilibrium to make a prediction, what is the price that each theater will charge c) Give two ways by which the theaters could earn more than predicted in b). d) Angelika signs new contracts with its concessions suppliers, which results in a reduction of its marginal cost to SS How will vour predietion in b)change?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:1. Angelika and Village Screen are two independent movie theaters located close to each other in
Manhattan. They are similar theaters that screen the same films at the same show times. They both
sell only movie-popcorn combos. Since the two theaters have essentially identical offerings,
customers always prefer to go to the theater with the lower price. (If they charge the same price, then
they will split the market equally.) There are 1500 potential moviegoers every day, and each of them
is willing to pay up to $16 for a movie-popcorn combo. It is also known that each theater has 1800
seats, and the marginal cost of a movie-popcorn combo for each theater is $9. Suppose that each
theater takes a short-run perspective and only wants to maximize each day's profits, and that no
theaters are going to shut down in the short run.
a) What is the appropriate economic model to study price competition in this market?
b) If you use Nash equilibrium to make a prediction, what is the price that each theater will charge?
c) Give two wvays by which the theaters could earn more than predicted in b).
d) Angelika signs new contracts with its concessions suppliers, which results in a reduction of its
marginal cost to $8. How will your prediction in b) change?
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