Question

suppose that a small-town theater has six potential customers and is looking to implement price discrimination depending on when customers want to attend. suppose the marginal cost of serving an additional customer is $1.50. the data provide information about the time of attendance and willingness to pay for a ticket. customer brandon tyler austin alexis ashley emily maximum willingness to pay $4 $35 $10 $7 $12 $12 time of attendance matinee evening evening matinee evening matinee what should the theater charge for evening tickets? $ 35 what should the theater charge for matinee tickets?

Answer 1

The theater should set ticket prices based on the respective maximum willingness to pay of customers attending evening and matinee shows. This application of price discrimination aims to ensure covering the marginal cost and maximizing total revenue.

Step-by-step explanation:

The question revolves around price discrimination and elasticity of demand in the context of a theater seeking to maximize its revenue from ticket sales. To determine the optimal ticket prices for matinee and evening shows, we must consider the theater's variable cost, which is $1.50 per customer, and each customer's maximum willingness to pay.

For evening tickets, the theater should charge the highest price that all customers attending in the evening are willing to pay, which corresponds to the highest price that does not exceed the minimum willingness to pay among evening attendees. In the given data set, this would be determined by the customer(s) with the lowest maximum willingness to pay who also want to attend in the evening.

In the case of matinee tickets, a similar approach should be taken, considering the willingness to pay of customers who want to attend matinee shows. By utilizing price discrimination, the theater can capitalize on the different valuations of the tickets during different times, ensuring that the marginal cost of serving an additional customer is covered and that total revenue is maximized.