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Determine the optimal prices for weekdays and weekends

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As a manager of a chain of movie theaters that are monopolies in their respective markets, you have noticed much higher demand on weekends than during the week. You, therefore, conducted a study that has revealed two different demand curves at your movie theaters. On weekends, the inverse demand function is P = 30 − 0.002Q; on weekdays, it is P = 25 − 0.002Q. You acquire legal rights from movie producers to show their films at a cost of $20,000 per movie, plus a $4.00 "royalty" for each moviegoer entering your theaters (the average moviegoer in your market watches a movie only once).

i) What type of pricing strategy should you consider in this case?

ii) What price should you charge on weekends?

iii) What price should you charge on weekdays?

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Solution Summary

Solution depicts the steps to estimate the optimal prices in the given cases.

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i)
In this case, first-degree price discrimination is not feasible as it is not practically possible to charge a different price for each of the tickets sold. Second-degree price discrimination or block pricing is also not suitable in this case. Third-degree ...

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  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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