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. 2. The market for concession tickets (C) f) Calculate the inverse demand, write the profit maximizing condition, compute the profit maximizing price ?'"and the number of concession tickets ?'" that Rugby AU will choose to sell, as well as its profit π'". g) Use a diagram to illustrate the producer surplus PSC that Rugby AU enjoys, the consumer surplus for concession tickets customers CSC, and the deadweight loss DWLC in this market. Then, compute CSC and DWLC. h) The government wants to encourage children and pensioners to attend sport events. To do so, it is willing to give Rugby AU a subsidy of s per concession ticket sold, but the government wishes to calibrate this subsidy such that Rugby AU will sell the same number of concession tickets as in perfect competition. Assuming that the government knows the demand and the costs that Rugby AU has, compute how much the subsidy s should be. i) Cross subsidization: Suppose the government wishes to finance the total cost of the subsidy given in h) for concession tickets by taxing the tickets sold at full fare. Can you find the minimum amount of tax per unit t that the government would have to charge Rugby AU for the tickets sold at full fare in order to c
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.
2. The market for concession tickets (C)
f) Calculate the inverse demand, write the profit maximizing condition, compute the
profit maximizing price ?'"and the number of concession tickets ?'" that Rugby AU
will choose to sell, as well as its profit π'".
g) Use a diagram to illustrate the
DWLC in this market. Then, compute CSC and DWLC.
h) The government wants to encourage children and pensioners to attend sport events.
To do so, it is willing to give Rugby AU a subsidy of s per concession ticket sold, but
the government wishes to calibrate this subsidy such that Rugby AU will sell the same
number of concession tickets as in
knows the demand and the costs that Rugby AU has, compute how much the subsidy s
should be.
i) Cross subsidization: Suppose the government wishes to finance the total cost of the
subsidy given in h) for concession tickets by taxing the tickets sold at full fare. Can
you find the minimum amount of tax per unit t that the government would have to
charge Rugby AU for the tickets sold at full fare in order to c
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