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Orchestra's business manager is concerned with profit

The business manager of an orchestra performs two Saturday evenings each month with a new program for performance. It incurs the following costs for each performance:
Fixed overhead costs $1,500
Rehearsal costs $4,800
Performance costs $2,200
Variable costs $1 per person

The Orchestra's business manager is concerned with profit. The profit margin is currently very thin and she would like to increase it. Tickets for the performances sell for $11 each and the usual attendance is 900 patrons.

The business manager is considering three options:
1. A "student rush" ticket price at $3 and sold to college students 1/2 hour before performance. She figures that she could get 200 students who normally would not attend the performances. Clearly, however, the price of these tickets would not cover even half of the average cost per ticket.

2. A Sunday matinee repeat of the Saturday evening perfomance with tickets prices a $7. The manager expects to sell 700 tickets but 150 of those people would have attended the higher priced Saturday performance. The net patronage would increase by 550 but the price of the ticket is, once again, less than the average cost per ticket.

3. A new series of concerts to be performed on the alternate Saturdays. The tickets would still be priced at $11. The expectation is that 800 tickets would be sold but that 100 of those would be to individuals who would have attended the old series instead of the new one. The new patronage would increase by 700.

Which option do you recommend as best to optimize profit and why. Is there more than one solution for increasing profit? Show your analysis for each option.

Solution Preview

The option I would recommend is the student rush ticket price of $3 for students just before the concern. Though the price will not cover the average cost of the ticket, the fixed costs are already established and those costs, which include overhead, rehearsal and performance, along with the $1 variable costs, are already divided among the 900 patrons for the existing concerts. Assuming that the theater has a capacity of greater than 1,100 seats, the orchestra still stands to profit from such an option. If the fixed and variable ...

Solution Summary

Orchestra's business manager concerned with profits are examined.