MANAGERIAL/ECON+BUS/STR CONNECT ACCESS
9th Edition
ISBN: 2810022149537
Author: Baye
Publisher: MCG
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Chapter 11, Problem 18PAA
To determine
The pricing strategy to maximize the firm's profits is to be explained.
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As a manager of a chain of movie theaters that are monopolies in their respective markets, you have noticed much higher demand on weekends than during the week. You therefore conducted a study that has revealed two different demand curves at your movie theaters. On weekends, the inverse demand function is P = 20 – 0.001Q; on weekdays, it is P = 15 – 0.002Q. You acquire legal rights from movie producers to show their films at a cost of $25,000 per movie, plus a $2.50 “royalty” for each moviegoer entering your theaters (the average moviegoer in your market watches a movie only once).
As a manager of a chain of movie theaters that are monopolies in their respective markets, you have noticed much higher demand on
weekends than during the week. You therefore conducted a study that has revealed two different demand curves at your movie
theaters. On weekends, the inverse demand function is P= 20 – 0.001Q, on weekdays, it is P= 15 - 0.002Q. You acquire legal rights
from movie producers to show their films at a cost of $25,000 per movie, plus a $2.50 “royalty" for each moviegoer entering your
theaters (the average moviegoer in your market watches a movie only once).
What type of pricing strategy should you consider in this case?
O Third degree price discrimination
O Block pricing
O First degree price discrimination
O Second degree price discrimination
What price should you charge on weekends?
Instructions: Enter your response rounded to two decimal places.
$
What price should you charge on weekdays?
Instructions: Enter your response rounded to two decimal places.
As a manager of a chain of movie theaters that are monopolies in their respective markets, you have noticed much higher demand on
weekends than during the week. You therefore conducted a study that has revealed two different demand curves at your movie
theaters. On weekends, the inverse demand function is P = 30 -0.002Q; on weekdays, it is P= 22 -0.002 Q. You acquire legal rights
from movie producers to show their films at a cost of $30,000 per movie, plus a $3.50 "royalty" for each moviegoer entering your
theaters (the average moviegoer in your market watches a movie only once).
What type of pricing strategy should you consider in this case?
O Block pricing
O First degree price discrimination
O Second degree price discrimination
Ⓒ Third degree price discrimination
What price should you charge on weekends?
Instructions: Enter your response rounded to two decimal places.
$
What price should you charge on weekdays?
Instructions: Enter your response rounded to two decimal places.
$
Chapter 11 Solutions
MANAGERIAL/ECON+BUS/STR CONNECT ACCESS
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- The Star Theater is the only movie theater in Hollywood, SC, and therefore it has price-setting power. The Star Theater has two distinct types of customers: (i) senior citizens and (ii) non-senior citizens. The demand curve among senior citizens is: y₁ = 100-10p₁, for p₁ 10, where y₁ is the number of seats demanded by senior citizens at a senior citizen ticket price of p1. The demand curve among non-senior citizens is: y2 = 140 10p2, for p2 ≤ 14, where y2 is the number of seats demanded by non-senior citizens at a non-senior citizen ticket price of p2. The Star Theater's cost function is C(31,92) = C(y1 + y2) = F + (y1 + y2), where F is the fixed cost of operating the theater and y₁ and y2 are (as already defined) the number of senior citizen and non-senior citizen customers, respectively. By how much does the Star Theater increase profits if it operates as a third-degree price discriminator instead of as a single-price monopolist? $0 $10 $20 $30arrow_forwardThe Star Theater is the only movie theater in Hollywood, SC, and therefore it has price-setting power. The Star Theater has two distinct types of customers: (i) senior citizens and (ii) non-senior citizens. The demand curve among senior citizens is: y₁ = 100-10p₁, for p₁ 10, where y₁ is the number of seats demanded by senior citizens at a senior citizen ticket price of p1. The demand curve among non-senior citizens is: y2 = 140-10p2, for p2 14, where y2 is the number of seats demanded by non-senior citizens at a non-senior citizen ticket price of p2. The Star Theater's cost function is C(31, 32) = C(y1 + y2) = F + (y1 + y2), where F is the fixed cost of operating the theater and y₁ and y2 are (as already defined) the number of senior citizen and non-senior citizen customers, respectively. By how much does the Star Theater increase profits if it operates as a third-degree price discriminator instead of as a single-price monopolist? $0 $10 $20 $30arrow_forwardThere are two types of consumers in Melbourne: students and non-students. The student population is 10, and each student’s demand of printing paper is Q=1−p, for p<1.The non-student population is 40, and each non-student’s demand of printing paper is Q=3−p, for p<3. Suppose OfficeMax is the only seller of printing paper in Melbourne. Assume zero production cost. Suppose OfficeMax offers a student discount, $1, so students only pay $0.50 and non-students pay the full price, $1.50. What is the deadweight loss in this situation? What is the deadweight loss if there was no discount and both students and non-students share an optimal price of $1.30?arrow_forward
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