Question

In: Economics

Agnieszka ‘s Opera House can sell tickets to two types of customers: music lovers and tourists....

Agnieszka ‘s Opera House can sell tickets to two types of customers: music lovers and tourists. Assume for simplicity that each customer will purchase one ticket only. Assume (for simplicity) that the cost of providing the ticket is zero. The valuation or willingness to pay ($ per ticket) each type of buyer places on both types of tickets is presented below:

		Tourist	Music lover
Ticket	Normal seats	50	100
Ticket	VIP seats	50	400

Which of the following pricing schemes yields the highest profits if the firm cannot identify the type of buyer who is making the purchase? Assume that if the customer is indifferent between buying a ticket or not, he buys it.
Note, P_N is the price of the normal ticket and P_V the price of the VIP ticket.

P_N=30; P_V=30.

P_N=300; P_V=400.

P_N=300; P_V=300.

P_N=50; P_V=351.

P_N=50; P_V=349.

Expert Solution

"Answer:

An individual will only buy tickets if his/ her willingness to pay is higher or equal to the price at which ticket is being sold. For example for Price of VIP ticket greater than 50 , Tourist will not buy it , whereas Music lover will buy it. For price of normal ticket equal to 100, Tourist will not buy it whereas Music lover will buy it . But if P_N >100, no one will buy it.

P_N = 30 , P_v = 30, Bothe tourist and music lover will buy tickets . Hence revenue = 30*2 + 2*30 = $120

When P_N = 300, P_v = 400, , normal seat will not be bought by anybody whereas VIP seat will be bough by Music lover . Revenue = $400 .

When P_N = 300, again normal seats won't sell at this price whereas VIP seat will be bought by the music lover, revenue =$ 300.

When P_N = 50 , both music lover and tourist will buy it . Revenue earned from normal ticket would be $ 2*50 = $ 100. P_v = 351 , only music lover will buy it . Total revenue would be 100+351 = $ 451

When P_N = 50 , both music lover and tourist will buy , total revenue from normal ticket = $ 100 . When P_v = 349, total revenue from vip ticket $349 . Total revenue = 349+100 = $449.

As we can see at P_N = 50 and P_v = 351 , total revenue is highest. Hence thsi price scheme is best.

*Option '2' is the correct answer.

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Rahul Sunny answered 1 year ago

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