3. A soccer team faces demand uncertainty. In the high-demand state, the quantity demanded is QH(p) = 2,000(50 – P); in the low-demand state, it is QL(p) = 2,000(30 – P). The probability that demand is high is h e [0, ½]. Marginal cost is MC= 0, and the stadium has capacity K = 40,000. (i) Find the profit-maximizing ticket price, assuming that the team sells tickets before demand uncertainty is resolved. (ii) Suppose that the team sells tickets after demand uncertainty is resolved instead. Find the profit-maximizing prices. (iii) In which of the two scenarios is the expected value of social surplus higher?

3. A soccer team faces demand uncertainty. In the high-demand state, the quantity demanded is QH(p) = 2,000(50 – P); in the low-demand state, it is QL(p) = 2,000(30 – P). The probability that demand is high is h e [0, ½]. Marginal cost is MC= 0, and the stadium has capacity K = 40,000. (i) Find the profit-maximizing ticket price, assuming that the team sells tickets before demand uncertainty is resolved. (ii) Suppose that the team sells tickets after demand uncertainty is resolved instead. Find the profit-maximizing prices. (iii) In which of the two scenarios is the expected value of social surplus higher?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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