Question

Derek is the owner of the only movie theater in town. By hiring several well-trained economists, Derek learns that the people watching movies after 8 P.M. have a much higher average willingness to pay than people watching at 5 P.M. The costs of showing a movie are identical at 5 P.M. and 8 P.M. To maximize his profit, what should Derek do? Give him some specific advice, including drawing him a diagram or two. (Derek can get his economists to interpret your diagrams as long as you label all the axes and all the curves.)

plz i need " Aishwarya verm" to draw the curve clearly

i think her answer is cleaver but i didnt understand the curve

thanks for your assistans

Answer 1

--you YOUVA Derek is facina situation similar to that of a third degree olis cuiminating menopoustu has two types of consumer, namely - 8pm people. - 5pm people. Both types of consumer has different willingness to pay and cost incurred by Derek to serie both types of consumer is same. In this situation Derek Should charge different prices to both types of consumer to manimise his so we solue his problem of profit maximisation using the following figure, profit'.

pricel -ME ta MRS Os 1 IMRg a Vg Quantity (No. of movies

Dg Demand curve of people watching movies after 8pm. mRo marginal revenue curve of - 8PM people. Ds Demand curve of SPM people MR s marginal revenue of sim people. Mc Marginal cost cune. Ungmesente nelle Desk o cinco aurrage willingness to pay of 8pm honde is higher than SPM people. De in above Ds and so is Rs abor d so is MRg aboue MRS.

For Simplicity, I have assumed a constant marginal cost. Analysis and results will be similar even if we do not assume constant me. Condition for profit for a third deque me = m Rg = mre maximisation monopolist is,

So here Derek has two points of equilibrium one relating to 8pm people and the other to 5pm people. Point is is eauilibrium related to 18pm people and point's is equilib- sium related to 5pm people. So Derek Should show , aa units of movie at price Ps to 5pm people at price pe to - qq units at movie 8pm people.