Final answer:
The concert organizer can maximize profits by using two-price discrimination, charging different prices to different groups based on their willingness to pay, leading to a profit of $1,700. If only a single price can be charged, the price must be set carefully to ensure it covers the average cost and does not exceed the fixed costs to make a profit.
Step-by-step explanation:
In determining the pricing strategy, the concert organizer must consider the demand curve, marginal revenue (MR), and marginal cost (MC) to maximize profits. We have two types of concertgoers: one group willing to spend $60 (40 people) and another willing to spend $40 (70 people), with fixed costs at $3,500.
(a) The market demand curve for the monopolist will be a step function. It would start at $60 for the first 40 tickets and then drop to $40 for the next 70 tickets.
(b) The MR curve will also be a step function, mirroring the demand curve until the profit-maximizing quantity is reached. The MC curve is horizontal at the level of the average cost per ticket if the total fixed cost is spread over all tickets sold.
(c) With two-price discrimination, the monopolist can charge each group their maximum willingness to pay. Therefore, revenue from the first group is 40 tickets × $60 = $2,400 and from the second group is 70 tickets × $40 = $2,800, totaling $5,200. Subtracting the fixed costs of $3,500, the profit will be $1,700.
(d) If a single price must be charged for all tickets, the monopolist should find the price that maximizes total revenue without exceeding the fixed cost of $3,500. Assuming linear demand, a price between $40 and $60 would have to be set to sell all 110 tickets. If the organizer cannot find such a price or if the price falls below the average cost of $31.82 (calculated as $3,500÷110), then it would not be possible to make a profit.