Question

Seven potential customers are interested in seeing a movie. Since the marginal cost of admitting additional customers is zero, the movie theater maximizes its profits by maximizing its revenue:Customer Maximum willingness to Pay AgeAllison $8 66Becky 11 34Charlie 6 45David 7 16Erin 6 9Franco 10 28Grace 9 14a. What price would the theater charge if it could only charge one price?b. If the theater could charge two prices, what prices would it choose? Which customers would pay the higher price, and which would pay the lower price?

Answer 1

The movie theater should charge $11 if it could only charge one price. If the theater could charge two prices, it would charge $11 for customers with a higher maximum willingness to pay and $6 for customers with a lower maximum willingness to pay.

Step-by-step explanation:

To maximize its revenue, the movie theater should charge the price that corresponds to the customer with the highest maximum willingness to pay. In this case, Becky has the highest maximum willingness to pay at $11, so the theater should charge $11 for all customers.

If the theater could charge two prices, it would choose to charge a higher price for customers with a higher maximum willingness to pay. In this case, Becky, Allison, and Franco would pay the higher price of $11, while Charlie, David, Erin, and Grace would pay the lower price of $6.