Question

An economist estimates that a football team faces the below demand schedule for tickets for each home game it plays. The economist estimates that the team’s marginal cost of attendance, and thus for all tickets sold, is $20.

Number of Tickets per Game	0	2,000	3,000	4000	5,000	6,000	7000
Price Per Ticket	$85	80	75	65	56	48	38

1. Construct a table showing columns for the firm’s Total Revenue, Marginal Revenue and Marginal Cost.
2. Draw the demand, marginal revenue and marginal cost curves of the football team.
3. What is the team’s profit maximizing price and quantity of tickets it needs to sell?
4. What is the price elasticity of demand at the price you determined in part (c)?
5. What is the team’s total revenue when it produces its profit maximizing output?
6. Assume that the team’s total cost of producing its profit maximizing output is $150,000. What is the team’s total profit at this output level

Answer 1

A. Refer the attached picture

B. Refer the attached picture for Demand, MR and MC curve

C. The football teams profit maximizing price will be at that point where MR = MC. Therefore, the team must sell 5,000 tickets to maximize profit.

D. Price elasticity of demand can be determined using the following formula

Or, we can solve for elasticity using two points Q1 = 5000, and Q2 = 6000

Elasticity = 1.18

E. Total revenue at profit maximizing output = $ 280,000

F. Profit = Total revenue- Total cost

= $ 280,000 - $ 150,000

= $ 130,000

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