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 $1.50. the data provide information about the time of attendance and willingness to pay for a ticket.what should the theater charge for evening tickets?$what should the theater charge for matinee tickets?

Answer 1

The theater should consider price elasticity of demand to set optimal prices for evening and matinee tickets.

Step-by-step explanation:

The theater should charge different prices for evening tickets and matinee tickets based on the willingness to pay of customers at different times.

To determine the optimal prices, the theater should consider price elasticity of demand. If the demand for evening tickets is more elastic, a lower price should be set to increase the quantity sold and total revenue. On the other hand, if the demand for matinee tickets is more inelastic, a higher price can be set to compensate for the smaller decrease in quantity sold and increase total revenue.

By analyzing the data on customer willingness to pay, the theater can determine the appropriate pricing strategy for both evening and matinee tickets.

Answer 2

To maximize revenue, the theater should consider the price elasticity of demand for evening and matinee tickets, adjusting prices based on customer willingness to pay and ensuring that the marginal cost of serving additional customers is covered.

Step-by-step explanation:

The concept of price elasticity of demand is crucial when considering how to maximize revenue through ticket pricing. Total revenue is calculated as the product of price and quantity sold. To determine the optimal price for evening and matinee tickets, the theater must understand whether demand is elastic, inelastic, or unitary at the given price levels. If demand is elastic, lowering the price can lead to a larger quantity sold, increasing revenue. If demand is inelastic, a higher price will lead to a smaller decrease in quantity sold, which also raises revenue. If demand is unitary, changes in price will not affect total revenue significantly. In practice, the theater should analyze customer willingness to pay and adjust ticket prices accordingly to ensure that additional customers are served at a cost (marginal cost of $1.50) that maximizes revenue while covering expenses.