Question

1. You have achieved a dream job working for the Toledo Mud Hens. Remembering what you learned in Sports Economics, you managed to estimate the demand for general admission tickets as follows. Tickets Price 20 1000 19 2000 3000 18 17 4000 5000 16 6000 15 The marginal cost of selling a ticket is $12. Other fixed costs per game equal $6000. Finally, seating capacity is 6000. Use the following steps to find the profit maximizing price: first, calculate the Total Revenue Price x Tickets. Second, calculate the Marginal Revenue, which is the change in Total Revenue as you move from one price level to the next. Finally, find the price at which Marginal revenue Marginal cost. a. Marginal Cost Marginal Revenue Total Revenue Tickets Price 20,000 1000 $20 18.000 38,000 2000 $19 16,000 54,000 3000 $18 $17 14,000 68,000 4000 12,000 80,000 5000 $16 10,000 90,000 6000 $15 What is the profit maximizing price that you get from the above steps? b. How many tickets will be sold at that price? c.

Answer 1

a)

Marginal cost = 6000 + 12*X

where X is number of tickets

Profits = Total revenue - Marginal Cost

Price	Tickets	Total Revenue	Marginal Revenue	Marginal Cost	Profit
20	1000	20000		18000	2000
19	2000	38000	18000	30000	8000
18	3000	54000	16000	42000	12000
17	4000	68000	14000	54000	14000
16	5000	80000	12000	66000	14000
15	6000	90000	10000	78000	12000

b)

we see that maximum profit is 14000 which occur at Price = 16 or 17

we choose 16 as at that price Revenue is maximum

c)

number of tickets sold at P = 16 = 5000