Question

In: Economics

You have three tickets to a Celtics game on a night that you are going to...

You have three tickets to a Celtics game on a night that you are going to be out of town (so the value of unsold tickets is zero to you). There are only four possible buyers of a Celtics ticket. The table below lists the respective reservation prices of these four possible buyers: Customer Reservation Price 1 $25 2 $35 3 $50 4 $60 How much revenue can you generate if you charge a single price of $25 for the three tickets?

a) How much revenue can you generate if you charge a single price of $35 for the three tickets?

b). How much revenue can you generate if you charge a single price of $50 for the three tickets?

c) How much revenue can you generate if you charge a single price of $60 for the three tickets?

d) Which of the prices fetches you the highest revenue?

e) Next, you think about inviting bids using an English auction to sell your tickets. How much revenue can you generate using the English auction mechanism from the sale of the first ticket?

f) How much revenue can you generate using the English auction mechanism from the sale of the second ticket?

g) How much revenue can you generate using the English auction mechanism from the sale of the third ticket?

h) How much total revenue can you generate using the English auction mechanism?

i) Which pricing strategy gives you higher revenue - English Auction or charging a single price?

Solutions

Expert Solution

Question

(a)

If price per ticket is $25 then all four possible buyers would be interested in buying the ticket as their reservation price is either equal or greater than the price of the ticket.

So, all three tickets would be sold.

Calculate the total revenue -

Total revenue = Price per ticket * Number of tickets = $25 * 3 = $75

The total revenue generated when single price of $25 per ticket is charged is $75.

(b)

If price per ticket is $35 then buyer 2, 3, and 4 would be interested in buying the ticket as their reservation price is either equal or greater than the price of the ticket.

So, all three tickets would be sold.

Calculate the total revenue -

Total revenue = Price per ticket * Number of tickets = $35 * 3 = $105

The total revenue generated when single price of $35 per ticket is charged is $105.

(c)

If price per ticket is $50 then buyer 3 and 4 would be interested in buying the ticket as their reservation price is either equal or greater than the price of the ticket.

So, only two tickets would be sold.

Calculate the total revenue -

Total revenue = Price per ticket * Number of tickets = $50 * 2 = $100

The total revenue generated when single price of $50 per ticket is charged is $100.

(d)

If price per ticket is $60 then buyer 4 would be interested in buying the ticket his or her reservation price is either equal to the price of the ticket.

So, only one ticket would be sold.

Calculate the total revenue -

Total revenue = Price per ticket * Number of tickets = $60 * 1 = $60

The total revenue generated when single price of $60 per ticket is charged is $60.

(e)

The single price of $35 per ticket fetches the highest revenue.

Rahul Sunny answered 1 year ago

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