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Amanda and Yvonne are thinking of going out to the movies. Amanda likes action icks more, but Yvonne likes a little bit of romance. Warner
Amanda and Yvonne are thinking of going out to the movies. Amanda likes action icks more, but Yvonne likes a little bit of romance. Warner Bros. is trying to decide what kind of movies to make this year. Here's the two friends' willingness to pay for the separate kinds of movies. As you can see, both Amanda and Yvonne are annoyed by the idea of a hybrid movie: Each would rather see her favorite kind of movie. Maximum Willingness to Pay for a Movie Ticket Amanda Yvonne Pure action $10 $2 Pure romance $2 $10 Action + romance $9 $9 You're the midlevel executive who has to decide which project to green light. Your marketing people have gured out that there are 5 million people like Amanda and 5 million people like Yvonne in the United States, and they'll only see one lm per summer. To make things simple, assume that the marginal cost of showing the movie one more time is zero, and that ticket prices are xed at $8. You are trying to decide whether to make the hybrid movie or make both the pure action and pure romance movies. a. If the cost of producing any of the three lms is $30 million, the studio should make to maximize prot. b. If the hybrid costs $40 million to make the pure action ick $30 million, and the romance a mere $15 million the studio should make c. Holding all else equal, the cost of the pure romance lm would have to fall to $ million before the two-movie deal would get the green light. d. (Hard) There's an underlying principle here: The \"unbundled\" two-movie deal won't get the green light unless its total cost is less than
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