Question

You live in a town with 300 adults and 200 children, and you are thinking about putting on a play to entertain your neighbors and make some money. A play has a fixed cost of $2,000, but selling an extra ticket has zero marginal cost. Here are the demand schedules for your two types of customers:
Price (Dollars) Adults (Tickets) Children (Tickets)
20 0 0
18 25 0
16 50 0
14 100 0
12 150 0
10 200 0
8 300 25
6 300 50
4 300 100
2 300 150
0 300 200
To maximize profit, you would charge _____ (number) for an adult's ticket and _____ (number) for a child?s ticket. Total profit in this case would be _____ (number).
The city council passes a law prohibiting you from charging different prices to different customers.
Now you set a price of _____(number) for all tickets, resulting in _____(number) in profit.
Indicate whether each of the following groups of people is better off, worse off, or the same because of the law prohibiting price discrimination.
Groups of People Better Off Worse Off Unchanged
Adults
Children
You, the Producer
Suppose the fixed cost of the play were $2,600 rather than $2,000.
Complete the following sentences indicating how this would change your answers to the previous parts.
In the presence of price discrimination, the adult price of a ticket would _____ (increase, decrease, remain the same), and the child price would _____ (increase, decrease, remain the same). Total profit would _____ (rise, fall) to (number).
If price discrimination were banned and the monopolist continued to produce the play no matter what the profit, the price of a ticket would _____ (increase, decrease, remain the same), and total profit would _____ (rise, fall) to _____ (number).

Answer 1

Answer:

Explanation:

To maximize profit, you would charge $8 for an adult's ticket and $4 for a child?s ticket. Total profit in this case would be $800.

The city council passes a law prohibiting you from charging different prices to different customers.

Now you set a price of $8 for all tickets, resulting in $600 in profit.

Indicate whether each of the following groups of people is better off, worse off, or the same because of the law prohibiting price discrimination.

Groups of People Better Off Worse Off Unchanged

Adults x

Children x

You, the Producer x

Suppose the fixed cost of the play were $2,600 rather than $2,000.

Complete the following sentences indicating how this would change your answers to the previous parts.

In the presence of price discrimination, the adult price of a ticket would remain the same, and the child price would remain the same. Total profit would fall to $200.

If price discrimination were banned and the monopolist continued to produce the play no matter what the profit, the price of a ticket would remain the same, and total profit would fall to $0.