Question

The town's 900 students and 100 professors are served by the Collegetown movie theatre. The amount that each student is willing to spend on a movie ticket is $5. The amount that each professor is willing to pay is$10. Each person will only buy one ticket. There is no fixed cost and the marginal cost of a movie ticket remains constant at $3. a. Assume that the movie theatre does not discriminate based on pricing and costs professors and students the same amount for a ticket. Who will purchase tickets and how much money will the movie theatre make if it charges$5?

a How much consumer excess is there?
b. Who will purchase movie tickets at the $10 price point, and how much money will the theatre make? How much consumer excess is there? c. Assuming the movie theatre has the authority to charge professors$10 and students $5, respectively, and that professors must have a valid student ID, how much money would the cinema make? How much consumer excess is there?

Answer 1

The movie theatre will make $5000 if it charges $5 per ticket and all students and professors will purchase tickets. The consumer excess for students is $2 and for professors is $7. If the theatre charges $10 per ticket, only the professors will purchase tickets, resulting in $1000 profit and a consumer excess of $7 for each professor.

Step-by-step explanation:

In this scenario, we have 900 students and 100 professors who are potential customers of the Collegetown movie theatre. If the theatre charges $5 per ticket, all the students and professors will purchase tickets. The movie theatre will make $5 x 1000 = $5000. The consumer excess in this case is the difference between the amount each person is willing to pay and the price they actually pay. For students, it is $5 - $3 = $2, and for professors, it is $10 - $3 = $7.

If the theatre charges $10 per ticket, only the professors will purchase tickets. Therefore, the movie theatre will make $10 x 100 = $1000. The consumer excess in this case is $10 - $3 = $7 for each professor.

If the theatre charges $10 for professors and $5 for students, only the professors and students with valid student IDs will purchase tickets. Let's assume that half of the students have valid IDs, so 450 students and 100 professors will purchase tickets. The movie theatre will make $10 x 100 + $5 x 450 = $5500. The consumer excess for students is $5 - $3 = $2, and for professors, it is $10 - $3 = $7.