Final answer:
The Metropolitan Opera benefits from practicing differential pricing, which allows them to adjust ticket prices based on the price elasticity of demand. This strategy enables them to maximize revenue by price-discriminating between different groups and potentially increasing attendance among more price-sensitive audiences.
Step-by-step explanation:
How does the opera company benefit from differential pricing practices? The opera company, such as The Metropolitan Opera (the Met), can benefit in multiple ways by implementing pricing strategies based on the concept of price elasticity of demand. Total revenue is the product of price and quantity of tickets sold. When demand is elastic, lowering prices can lead to a higher percentage increase in quantity sold, thus raising total revenue. Conversely, when demand is inelastic, increasing prices might lead to a smaller percentage decrease in quantity sold, also increasing total revenue. For example:
- The Met is able to charge different prices to different groups, raising its profits.
- The Met can effectively price-discriminate between students and nonstudents.
- The Met can increase attendance among a group of people with more elastic demand by charging them a lower price.
This approach is particularly useful if the Met wants to fill seats that might otherwise remain unsold, maximizing revenue and expanding their audience base.