In Problem 5, you found the profit that a promoter of a major college basketball tournament would earn

if he were to segment the market into adults and students. Suppose that the promoter's CEO decides that

price discrimination presents a poor public image, and announces that everybody will be charged the same

price. His resident economist (you) is tasked with figuring out what that price should be.

a.

Find the total demand for tickets by adding the demand curves of adults and students.

b.

Derive the inverse demand curve for tickets, as well as the associated marginal revenue curve associated

with that demand.

c.

Find the profit-maximizing quantity of tickets and the corresponding price.

d. Determine the promoter's profit.

e.

Compare the promoter's profit when he tries to price for the entire market, to his profit when he simply

charges the adult price from the previous problem. Is it better for the

promoter to price for the entire

market and almost fill the arena, or to price for adults only and have a lot of empty seats?

6. a. The total demand is

Q

ad

+

Q

st

= 5,000

-

10

P

+ 10,000

-

100

P

= 15,000

-

110

P

b. The inverse demand function is

P

= 136.36

-

0.009

Q

Hence, the marginal revenue is

136.36

-

0.018

Q

c. The profit-maximizing quantity of tickets is

136.36

-

0.018

Q

= 10

Q

= 7,020

The profit-maximizing price is

P

= 136.36

-

(0.009 7,020)

= $73.18

d. The promoter's profit is

TR

-

TC

= ($73.18 7,020)

-

($10 7,020) = $444,523.60

e.

It is better for the promoter to price for adults only and have a lot of empty seats, as in that case the

profit would be $600,250 versus $443,523.60