You run a chain of movie theaters, so you commission a marketing study that categorizes your potential customers into 10 equal-sized groups according to what they're willing to pay for a movie, ($10,$9,$8,$7,$6,$5,$4,$3,$2,$1). It turns out that the low-value customer groups, those with values ($5,$4,$3,$2,$1), are all over 65 years old. All the costs of exhibiting movies are fixed except for the $3.50 royalty payment you must make to the film distributor for each ticket sold.
What price should you charge for movie tickets?
Should you offer senior citizen discounts? If so, how much?
Managerial Economics: A Problem Solving Approach
Authors: Luke M. Froeb and Brian T. McCann
- What price should you charge for movie tickets?
Let's unitize the size of customer groups, i.e., assume that there is ONE customer in each price group. Then the demand curve becomes: Q = 11 - P, or,
P = 11 - Q
Then the marginal revenue is:
MR = 11 - ...
Pricing determination is depicted.