Please answer both parts and provide a diagram. You’re the manager for a college
ID: 1206416 • Letter: P
Question
Please answer both parts and provide a diagram.
You’re the manager for a college football team. Assume you own the stadium and the variable cost per attendant is $0. You’ve been told by your in-house economist that you should set the price of tickets at $50 to maximize profit (at current, you set one price). Your football coach is really pushing to sell out the game.
1. Under what condition will profit maximization also result in a sold out game? Under what condition will profit maximization not result in a sold out game? (Solving mathematically and drawing a figure would be helpful).
2. If the game is not sold out at the profit maximizing price, what strategy could the team employ that would result in a lower deadweight loss?
Explanation / Answer
There is no variable cost, hence MC cannot be calculated.
Profit maximization = MC = MR
MR is $50, but there is no MC. If MC is available the profit maximizing condition can be calculated.