Suppose the JLFB movie production company has produced two movies, A and B, and distributes them...

Suppose the JLFB movie production company has produced two movies, A and B, and distributes them to theaters with willingness to pay for the two movies, which is shown below,

Movie A Movie B

A. Smith Theater $135 $95

J. Schumpeter Theater $85 $115

a. Which package will result in the largest profit for the JFLB movie production company?

b. Charge $85 for movie A and $95 for movie B.

c. Charge $135 for movie A and $115 for movie B.

d. Charge $100 for both movie A and B if they are bought together.

e. Charge $110 for both movie A and B if they are bought together.

Expert Solution

Answer : The answer is "Charge $85 for movie A and $95 for movie B".

Because if the price of movie A is $85 then both theaters will purchase movie A. So, at $85 price for movie A the movie production company gets = 2 * 85 = $170. But at $135 price for movie A only one theater is ready to purchase. So, at $135 price level for movie A the movie production company gets = 1 * 135 = $135. As by charging $85 price for movie A the movie production company gets higher profit hence charging $85 for movie A provides the largest profit to the movie production company.

If the price of movie B is $95 then both theaters will purchase the movie B. So, at $95 price for movie B the movie production company gets = 2 * 95 = $190. But at $115 price for movie B only one theater is ready to purchase. So, at $115 price level for movie B the movie production company gets = 1 * 115 = $115. As by charging $95 price for movie B the movie production company gets higher profit hence charging $95 for movie B provides the largest profit to the movie production company.

Total profit at $85 price for movie A and $95 price for movie B = 170 + 190 = $360.

Total profit at $135 price for movie A and $115 price for movie B = 135 + 115 = $250.

Therefore, as $85 price for movie A and $95 price for movie B the total profit is higher hence the option "Charge $85 for movie A and $95 for movie B" is correct.

Rahul Sunny answered 1 year ago

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