3. A soccer team faces demand uncertainty. In the high-demand state, the quantity demanded is QH(p) = 2,000(50 – P); in the low-demand state, it is QL(p) = 2,000(30 – P). The probability that demand is high is h e [0, ½]. Marginal cost is MC= 0, and the stadium has capacity K = 40,000. (i) Find the profit-maximizing ticket price, assuming that the team sells tickets before demand uncertainty is resolved. (ii) Suppose that the team sells tickets after demand uncertainty is resolved instead. Find the profit-maximizing prices. (iii) In which of the two scenarios is the expected value of social surplus higher?

3. A soccer team faces demand uncertainty. In the high-demand state, the quantity demanded is QH(p) = 2,000(50 – P); in the low-demand state, it is QL(p) = 2,000(30 – P). The probability that demand is high is h e [0, ½]. Marginal cost is MC= 0, and the stadium has capacity K = 40,000. (i) Find the profit-maximizing ticket price, assuming that the team sells tickets before demand uncertainty is resolved. (ii) Suppose that the team sells tickets after demand uncertainty is resolved instead. Find the profit-maximizing prices. (iii) In which of the two scenarios is the expected value of social surplus higher?

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter14: Pricing Techniques And Analysis

Section: Chapter Questions

Problem 2E: The price elasticity of demand for air travel differs radically from first-class (1.3) to...

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