Question

You live in a town with 300 adults and 200 children, and you are thinking about putting on a play to entertain your neighbors and make some money. A play has a fixed cost of $2000, but selling an extra ticket has zero marginal cost. Here are the demand schedules for your two types of customer

Price Adults Children
10 0 0
9 100 0
8 200 0
7 300 0
6 300 0
5 300 100
4 300 200
3 300 200
2 300 200
1 300 200

a. To maximize profit, what price would you charge for an adult ticket? For a child's ticket? How much profit do you make?
b. The city council passes a law prohibiting you from charging different prices to different customers. What price do you set for a ticket now? How much profit do you make?
c. Who is worse off because of the law prohibiting price discrimination? Who is better off? (If you can, quantify the changes in welfare.)
d. If the fixed cost of the play were $2,500 rather than $2,000 how would your answers to parts a, b, and c change?

Answer 1

Answer:

Explanation:

a) To maximise profit, we would charge a price of 7 for adults and a price of 4 for children.

Profit would be = 7 x 300 + 4 x 200

Profit = 2900

This is the maximum profit other than fixed cost

b) If we have to keep one price of the ticket, then it would be 7. This would yeild a profit of 2100

c) From the law, the adults dont get any benefit, rather the children are in best position of free ticket

d) Fixed cost wont effect the answers above as long as the price and numbers of participants wont change

Answer 2

Marginal cost is the cost that is produced by changing the total production cost by making one additional unit of production. The calculation of the marginal cost is done because of the sacrifice level or the affordability of the middle-level group of people.

The answers to the sub-parts of the questions:

A) To maximize profit, The charged price is 7 for adults and a price of 4 for children.

$\text{Profit} = 7 \times 300 + 4 \times 200\text{Profit} = 2900$

This is the maximum profit other than fixed cost.

B) The new set price for the ticket is 7. This would yield a profit of 2100.

C) From the law, the adults don't get any benefit, rather the children are in the best position of free ticket

D) Fixed cost won't affect the answers above as long as the price and numbers of participants won't change.

To know more about the calculation of the costs of the tickets, refer to the link below:

https://brainly.com/question/16108848