Econ Micro (book Only)
6th Edition
ISBN: 9781337408066
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 14, Problem 9P
To determine
The signaling and screening functions in the labor markets.
Concept Introduction:
Signaling refers to the exchange of information between parties, where one party credibly conveys some internal information to another party (principal). Screening is a way of reducing adverse selection problems, decisions are taken by the parties with more information than the others.
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A movie theater is showing two different movies: a Hollywood blockbuster (with 100 customers willing to pay $10 for a ticket, and 100 willing to pay $8) and an independent film that attracts 50 film buffs, willing to pay $20 each. Marginal costs are zero and neither movie can fill theater capacity. What is the theater's maximum profit if it cannot price discriminate (it must charge the same price for both movies) and if it can price discriminate (it may charge different prices for different movies)?
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A movie theater is showing two different movies: a Hollywood blockbuster (with 100 customers willing to pay $10 for a ticket, and 100 willing to pay $8) and an independent film that attracts 50 film buffs, willing to pay $20 each. Marginal costs are zero and neither movie can fill theater capacity. What is the theater's maximum profit if it cannot price discriminate (it must charge the same price for both movies) and if it can price discriminate (it may charge different prices for different movies)?
a. $2,000; $2,600
b. $1,500; $2,100
c. $1,500; $2,000
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