Final answer:
A university must consider the operational costs, demand for games, competitive pricing, and seating capacity when setting ticket prices. Optimal pricing must balance covering expenses and maximizing revenue without deterring attendance. This is analogous to a band choosing a ticket price that maximizes revenue with fixed costs and variable demand.
Step-by-step explanation:
When a university is trying to determine how much it should charge for tickets to basketball games to help offset the expenses of the new arena, several factors must be considered. They need to assess the cost of operating the new arena, gauge the demand for basketball games, compare the prices charged by other universities for similar games, and understand the seating capacity of the arena in order to set optimal ticket prices. For any given price, the associated demand will dictate how many tickets are sold. The university must find a balance between setting a price that covers costs and maximizes profits, while also ensuring that the price is attractive enough for a significant number of attendees. This concept aligns with demand elasticity in economics, where the quantity of tickets sold will vary inversely with price changes.
As an example, take a band on tour playing in a 15,000-seat indoor arena. If the band has a fixed cost for their appearance (regardless of audience size) and keeps all ticket revenue, they face a decision similar to the university's. They must optimize the ticket price to generate the most total revenue - which may not always mean filling every seat. In general, setting a lower price can lead to more tickets sold but result in lower revenues if prices are too low. Conversely, raising the price might bring in more revenue per ticket but could result in fewer overall sales if demand is elastic. Some popular bands may find that demand for their tickets is inelastic up to a certain high price point, allowing them to set higher prices without significantly affecting the volume of tickets sold.