Homework SourseYou have achieved a dream job working for the Toledo Mud Hen
You have achieved a dream job working for the Toledo Mud Hens. Remembering what you learned in Sports Economics, you managed to estimate the demand for general admission tickets as follows.
Price
Tickets
$27
0
$24
1,000
$21
2,000
$18
3,000
$15
4,000
$12
5,000
$9
6,000
$6
7,000
The marginal (and average) cost of selling a ticket is $2. Other fixed costs per game equal $25,000. Finally, seating capacity is 7,000.
a)
What is the profit maximizing price? (Pick a multiple of $3.)
A:
b)
How many tickets will be sold at that price?
A:
c)
Compute the profits. (revenues – costs) (costs = $2 per ticket + fixed costs)
A:
d)
Suppose that the East stands collapse, and capacity falls to 3,000. What price do you recommend?
A:
e)
Now suppose that the West stands are judged to be unsafe, and capacity shrinks to 1,000. What price do you recommend?
A:
| Price | Tickets |
| $27 | 0 |
| $24 | 1,000 |
| $21 | 2,000 |
| $18 | 3,000 |
| $15 | 4,000 |
| $12 | 5,000 |
| $9 | 6,000 |
| $6 | 7,000 |
Solution
1) Solution: The profit maximizing price is $15
Working: Details in the table below
2) Solution: 4000 tickets
Working: Details in the table below
3) Solution:
Price
Tickets
Revenue
Cost
Profit
$27
0
$0
$0
$0
$24
1,000
$24,000
$21,000
$3,000
$21
2,000
$42,000
$22,000
$20,000
$18
3,000
$54,000
$23,000
$31,000
$15
4,000
$60,000
$24,000
$36,000
$12
5,000
$60,000
$25,000
$35,000
$9
6,000
$54,000
$26,000
$28,000
$6
7,000
$42,000
$27,000
$15,000
?
4) Solution: Because the profit maximizing capacity is at 4,000 thus the price as obtained before i.e. $15 would be the suggested price.
?
5) Solution: As the total capacity is 1,000 thus the price $3,000 is most profitable, therefore would recommend $15 as the ticket price
| Price | Tickets | Revenue | Cost | Profit |
| $27 | 0 | $0 | $0 | $0 |
| $24 | 1,000 | $24,000 | $21,000 | $3,000 |
| $21 | 2,000 | $42,000 | $22,000 | $20,000 |
| $18 | 3,000 | $54,000 | $23,000 | $31,000 |
| $15 | 4,000 | $60,000 | $24,000 | $36,000 |
| $12 | 5,000 | $60,000 | $25,000 | $35,000 |
| $9 | 6,000 | $54,000 | $26,000 | $28,000 |
| $6 | 7,000 | $42,000 | $27,000 | $15,000 |
