In: Economics
Suppose Rialto is the only movie cinema in a small college town, so it is essentially a monopoly for the local movie market. They charge a certain price P for a monthly pass. There is an overall demand curve for movie passes, given by P=900−4Q However, demand in the town has two distinct consumer groups: adults (A) and students (S). The demand for the whole group of adults is given by P=1200−8QA and the inverse demand for students is given by P=400−2QS Assume for simplicity that the constant marginal cost MC(Q) of showing a movie is 20 and there are no additional fixed costs.
(e)Calculate the profit-maximizing quantities and prices for students and adults.
(f) Calculate total costs, revenues, and profits resulting from these values.
(g) Show this in your figures graphically, as well
(h) Compare total profits in (b) with (f). Which is greater. Under what circumstances would the ID machine be worth it (that is, for what values of $M)?