Consider the following simplified scenario. Imagine that the Australian national rugby union (for short, Rugby AU) has exclusive rights to organize the games played by the national team. Rugby AU decides that the next match, between the Wallabies and the All Blacks (i.e., the Australian and the New Zeeland national rugby teams), will be hosted at the Marvel Stadium in Melbourne. Rugby AU has no fixed costs for organizing the game, but it must pay a marginal cost MC of $20 per seat to the owners of the Marvel Stadium. Two types of tickets will be sold for the game: concession and full fare. Based on any official document that attests to their age, children and pensioners qualify to purchase concession tickets that offer a discounted price; everyone else pays the full fare. The demand for full-fare tickets is QF(P) = 120 – 2P. The demand for concession tickets is QC(P) = 80 – 2P. Combined/merged market (M) i) Suppose that Rugby AU becomes unable to verify the age of its customers; thus, the formerly distinct full fare and concessional ticket markets must be combined/merged in one single market. First, write the equation of the combined demand and show it using a diagram. Then show and calculate the profit maximizing price PM and number of tickets QM that Rugby AU will choose to sell, as well as its profit πM. j) How is each category of customers (i.e., full fare vs. concessional ticket customers) affected by the market merger? Do customers in each category benefit, or are they harmed by the merger? Justify and explain your answer. k) Given the choice, would a profit maximizing Rugby AU prefer to operate distinct full fare and concession ticket markets, or just one single merged market? Justify your answer. l) If the government (seeking to maximize social welfare) could mandate which type of market Rugby AU should operate, should it opt for requiring distinct full fare and concession ticket markets, or just one single merged market? Justify your answer.

Consider the following simplified scenario. Imagine that the Australian national rugby union (for short, Rugby AU) has exclusive rights to organize the games played by the national team. Rugby AU decides that the next match, between the Wallabies and the All Blacks (i.e., the Australian and the New Zeeland national rugby teams), will be hosted at the Marvel Stadium in Melbourne. Rugby AU has no fixed costs for organizing the game, but it must pay a marginal cost MC of $20 per seat to the owners of the Marvel Stadium. Two types of tickets will be sold for the game: concession and full fare. Based on any official document that attests to their age, children and pensioners qualify to purchase concession tickets that offer a discounted price; everyone else pays the full fare. The demand for full-fare tickets is QF(P) = 120 – 2P. The demand for concession tickets is QC(P) = 80 – 2P. Combined/merged market (M) i) Suppose that Rugby AU becomes unable to verify the age of its customers; thus, the formerly distinct full fare and concessional ticket markets must be combined/merged in one single market. First, write the equation of the combined demand and show it using a diagram. Then show and calculate the profit maximizing price PM and number of tickets QM that Rugby AU will choose to sell, as well as its profit πM. j) How is each category of customers (i.e., full fare vs. concessional ticket customers) affected by the market merger? Do customers in each category benefit, or are they harmed by the merger? Justify and explain your answer. k) Given the choice, would a profit maximizing Rugby AU prefer to operate distinct full fare and concession ticket markets, or just one single merged market? Justify your answer. l) If the government (seeking to maximize social welfare) could mandate which type of market Rugby AU should operate, should it opt for requiring distinct full fare and concession ticket markets, or just one single merged market? Justify your answer.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Combined/merged market (M)
i) Suppose that Rugby AU becomes unable to verify the age of its customers; thus, the formerly distinct full fare and concessional ticket markets must be combined/merged in one single market. First, write the equation of the combined demand and show it using a diagram. Then show and calculate the profit maximizing price PM and number of tickets QM that Rugby AU will choose to sell, as well as its profit πM.

j) How is each category of customers (i.e., full fare vs. concessional ticket customers) affected by the market merger? Do customers in each category benefit, or are they harmed by the merger? Justify and explain your answer.

k) Given the choice, would a profit maximizing Rugby AU prefer to operate distinct full fare and concession ticket markets, or just one single merged market? Justify your answer.

l) If the government (seeking to maximize social welfare) could mandate which type of market Rugby AU should operate, should it opt for requiring distinct full fare and concession ticket markets, or just one single merged market? Justify your answer.

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