Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

fThe movie industry is somewhat different from other industries in terms of marginal costs. although for simplicity we assumed a flat fee of 33 per

image text in transcribedimage text in transcribed
\fThe movie industry is somewhat different from other industries in terms of marginal costs. although for simplicity we assumed a flat fee of 33 per ticket, in realityr theater owners pay an average of 50% of their box office revenue to the movie distributor. They pay more in the first few weeks a movie is released and less in later weeks. In effect, theater owners make most of their profits from concessions [which explains why a large popcorn often costs more than a matinee ticket}. ill-l Soto maximize profit, you want to make sure that your customers buy as many concessions as possible. You decide a bundling scheme is a good option to explore. You currently charge $0 for popcorn and $3 for candy. Market research reports show that customers who buy popcorn tend to also buy a drink. However, customers who buy popcorn tend not to buy candy and vice versa. People buy one or the other, but not both. Your plan, then, is to bundle popcorn and candy together at a discounted price to try to change the consumer behavior from buying one or the other to buying both. The question, as usual, is what price to charge to maximize demand as well as profit. Based on price discrimination and peak-load pricing, you can expect an average of 3,220 moviegoers a month. Suppose these customers are split into four groups, as follows: Group F: only buys popcorn [760 visits} Group C: only buys candy [T50 visits} Group PC: buys both {420 visits] Group N: buys neither [1,300 visits] You consider offering a bundie of 1 popcorn + i candy for $100. The marginal cost of candy is $0.50, and the marginal cost of popcorn is $1.00. Calculate the following bundling scenarios to figure out if you should employ this pricing scheme or not

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Economics The Basics

Authors: Michael Mandel

2nd Edition

0073523186, 9780073523187

More Books

Students also viewed these Economics questions