Suppose in a small town called Utopia live 200 children and 300 adults. The only entertainment in the town is a theatre. The theatre has a fixed cost of 2000 dollars for preparing each play. However, once the play is ready, then selling an additional ticket has no cost at all. Demand for adult citizens and children are given in the following table What if the municipal government of Utopia decides to prohibit price discrimination, what will be the price charged by the theatre company? How much profit will it make.

Answered: if the municipal government of Utopia…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose in a small town called Utopia live 200 children and 300 adults. The only entertainment in the town is a theatre. The theatre has a fixed cost of 2000 dollars for preparing each play. However, once the play is ready, then selling an additional ticket has no cost at all. Demand for adult citizens and children are given in the following table

What if the municipal government of Utopia decides to prohibit price discrimination, what will be the price charged by the theatre company? How much profit will it make.

Expert Solution

Step 1: Solve Table

In this case, profit would be maximizing at point where revenue is maximum and outcome also same as there are only fixed cost, no variable cost. Total revenue is given in the following table:

Price (Dollar)	Quantity Demanded of Adult tickets	Total Revenue from Adult tickets (P*Q for Adult)	Quantity Demanded of Children tickets	Total Revenue from Adult tickets (P*Q for children)	Total Revenue (Adult + children)
10	0	0	0	0	0
9	100	900	0	0	900
8	200	1600	0	0	1600
7	300	2100	0	0	2100
6	300	1800	0	0	1800
5	300	1500	100	500	2000
4	300	1200	200	800	2000
3	300	900	200	600	1500
2	300	600	200	400	1000
1	300	300	200	200	500
0	300	0	200	0	0

The above table shows the total revenue by selling Adults tickets and total revenue by selling Children tickets. Total revenue can be derived by multiplying quantity demanded and price.

TR = P * Q

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