QuadPlex Cinema is the only movie theater in Idaho Falls. The nearest rival movi
ID: 1251000 • Letter: Q
Question
QuadPlex Cinema is the only movie theater in Idaho Falls. The nearest rival movie theater, the Cedar Bluff Twin, is 35 miles away in Pocatello. Thus QuadPlex Cinema possesses a degree of market power. Despite having market power, QuadPlex Cinema is currently suffering losses. In a conversation with the owners of QuadPlex, the manager of the movie theater made the following suggestions: "Since QuadPlex is a local monopoly, we should just increase ticket prices until we make enough profit." Comment on this strategy. How might the market power of QuadPlex Cinema be measured? Also recommend, the options that QuadPlex consider in the long run.Explanation / Answer
Market power has its limits. In the case you presented...you can not increase "indefinitely" the price of the ticket or the good...because the consumer's break even point will come into play and he/she will switch the use of the "ticket" to some other usage. Comes into play "the long run" --number one issue we have to define it. Keynes stated in the long run we are all dead. So no need to discuss or give options. In the medium or short range run -- say 5-10 yrs. this quadPlex Cinema could add other usage to its existence, such as -- movies and conference avenues -- entertainment world... usage of the recent technology....It has its physical location intact -- but should change its marketing to new or newer usage of its physical environment. Hope it helps. (The rest is $300. an hr./ advice!)