Question

Return to: Section 5

6) The Crescent Street Jam (a local jazz quintet, with your Professor on Piano) has market power. Consumers in Potsdam demand tickets to each live performance according to P=18-0.2*Q (MR=18-0.4Q). The band faces a constant Marginal Cost of MC=$0.10. Their total costs are TC=150+0.1Q     

a) In this setting, how many tickets should they sell to each concert to maximize profits? At what price should those tickets be sold? What are the band’s profits? Graph this scenario.

b) Suppose that since the band has frequent gigs at bars and restaurants around town, they choose to use block/quantity pricing to sell “season” ticket packages to individuals. A ticket can then be used for ANY of the 24 concerts in a year. Suppose individual consumers have an annual demand for tickets represented by P=6-0.2*Q. How much should the band charge for a bundle of tickets and how many tickets should be in each bundle, again assuming that MC is constant at $0.10? Graph this scenario.

c) Using the same parameters as in part b), imagine setting up a 2nd Degree Price Discrimination system with various "size" ticket bundles. In particular, suppose they sell a 5 ticket bundle, a 10 ticket bundle, and a 20 ticket bundle. What prices should they charge for these various bundles?  

d) The bar where they band plays sells Yuengling Beer. When the band is performing each consumer’s demand for Yuengling is P=8-1.5B, where B represents the quantity of beer consumed. The bar’s marginal cost is $0.50. The bar can use two-part pricing by charging a “cover” charge. How large should the cover charge be? How much should the bar charge for each beer? Graph this scenario.

Answer 1