Question

During the summer season, minor league baseball games are held at Nat Bailey Stadium. You have been hired by the General Manager of Nat Bailey Stadium to assist in increasing revenues because ticket sales are dismal. Presently adult tickets are $10 per person. The stadium seats 3000 people, you have noticed that the stadium is only half full on game nights.  Illustrate this situation using supply and demand curves. Is this market in equilibrium?  Explain and include a graph. What would you suggest to the GM?

Answer 1

The demand for tickets in the stadium is relatively elastic and demand curve is downward sloping and since capacity of the stadium is fixed, the supply of tickets is also fixed and thus we have a vertical supply curve in this market. In the diagram below, initial equilibrium in the market occurs at point E' where price of each ticket is $10 and equilibrium quantity is below the full capacity of the stadium.

At point E', the market is not in equilibrium.In order to increases sales and revenue from the stadium and use the stadium to its full capacity, it is advisable to the GM to decrease price of each ticket charged from the adult because decrease in price will increase quantity demanded of tickets by a greater amount and this will increase total revenue from the tickets sold in the stadium. There will be downward movement along demand curve and the market will move towards point E* which is the point of equilibrium and there is full utilization of the capacity of the stadium.