The following equation represents the weekly demand that a local theater faces. Qd = XXXXXXXXXXP + 2...

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The following equation represents the weekly demand that a local theater faces. Qd = XXXXXXXXXXP + 2 A, where P represents price and A is the number of weekly advertisements. Presently the theater advertises 125 times per week. Assuming this is the only theater in town, and its marginal cost, MC, is equal to zero, a. Determine the profit maximizing ticket price for the theater. b. What is the price elasticity of its demand at this price? c. What is the elasticity of its demand with respect to advertising? d. Now suppose the theater increases the number of its ads to 250.
	
Document Preview: 24.The following equation represents the weekly demand that a local theater faces. Qd = XXXXXXXXXXP + 2 A, where P represents price and A is the number of weekly advertisements. Presently the theater advertises 125 times per week. Assuming this is the only theater in town, and its marginal cost, MC, is equal to zero,a. Determine the profit maximizing ticket price for the theater. b. What is the price elasticity of its demand at this price?c. What is the elasticity of its demand with respect to advertising?d. Now suppose the theater increases the number of its ads to 250. Should the theater increase its price following this ad campaign? Explain.25.The Blue Dragon Restaurant is a new Chinese Restaurant in town. As the only Chinese restaurant in the area, it faces the following daily demand curve:Q = XXXXXXXXXXP where Q is the number of meals it serves per day and P is the average price of its meals. The cost functions of the restaurant have been estimated as follows:TC = 220 + 6Q + .02 Q2MC = XXXXXXXXXXQATC = 220/Q +6 + .02Q ; Slope = -220/Q2 +.02 a. Determine the profit-maximizing price of each meal assuming The Blue Dragon is behaving as a monopoly.b. Determine the profit of the Restaurant. c. If the company were to produce as a perfectly competitive firm, how much would it produce? d. What price should it charge as a competitive firm?e. Would it still make a profit if it behaved like a competitive firm?As a result of the success of the Blue Dragon other Chinese restaurants start appearing in the area. As the Blue Dragon's customers gradually start trying other (new) Chinese restaurants, its demand curve gets flatter (more elastic) and shifts to the left. In reaction, The Blue Dragon lowers its price and adjust its output to the point that, eventually, its (economic) profit disappears; It becomes equal to zero. At that point the slope of its demand curve becomes -0.02.f. Determine the new (equilibrium) average price The Blue Dragon charges for...

Robert · Accepted Answer

24.The following equation represents the weekly demand that a local theater faces.  
Qd = 2000 - 25 P + 2 A,  
Where ‘P’ represents price and ‘A’ is the number of weekly advertisements.  
Presently the theater advertises 125 times per week. Assuming this is the only theater in town, 
and its marginal cost, MC, is equal to zero, 
a. Determine the profit maximizing ticket price for the theater.  
Answer: 
We are given  
Qd = 2000 - 25 P + 2 A 
A = 125 
MC = 0 
So, quantity demanded (Qd) = 2000-25P+2*125 = 2250-25P or 
Q = 2250-25P or P = 90-(Q/25)  ………………… (1) 
Total revenue (TR) = P*Q = 90Q – (Q
2
/25) 
Marginal revenue (MR) =  dTR/dQ = 90 – (2Q/25) 
Profit is maximized at a point where MR = MC i.e. 
90 – (2Q/25) = 0 or 
90 = 2Q/25, implies profit maximizing output (Qm) =  1125 
And profit maximizing price ticket price (Pm) = 90-(1125/25) = $45  ………… [using (1)]
b. What is the price elasticity of its demand at this price? 
Answer: 
Price elasticity = (dQ/dP)*(P/Q) 
dQ/dP = -25 
So, price elasticity (at P = 45 and Q = 1125) = (-25)*(45/1125) = -1 
This means demand is unitary elastic at profit maximizing point. 
c. What is the elasticity of its demand with respect to advertising? 
Answer: 
Advertisement elasticity = (dQ/dA)*(A/Q) 
dQ/dA = 2 
So, advertisement elasticity (at P = 45 and A = 125) = (2)*(125/1125) = 0.2222 
d. Now suppose the theater increases the number of its ads to 250.

The following equation represents the weekly demand that a local theater faces. Qd = XXXXXXXXXXP + 2 A, where P represents price and A is the number of weekly advertisements. Presently the theater...

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