Please can you explain how to solve question 2 of this problem set. I solved the first part, which you will see in the attachment.
Thanks,
PROBLEM SET #5 ECONOMICS 5310: MANAGERIAL ECONOMICS PLEASE SUBMIT USING BLACKBOARD DROP BOX. NAME: Problems 1. {9 points) Prot Maximizatian with no price discrimination You are running a football program at a large Texas university. Your program has been losing money and you therefore want to work out the prot maximizing price for tickets. You hire a consultant who calculates that you face the following demand curve for season tickets for each game: Qd(P) = 140. 000 2509 He notes that you have a very large stadium (92,589) seats that is never lled. He also notes that most of the costs that your football program faces (i.e., wages for staff, equipment and scholarships for players, maintenance for the large stadium) are xed costs and do not depend on the number of season tickets that you sell. He therefore estimates that your variable cost of selling anadditional season ticket is 0. Your total cost function, therefore, is only made up of fixed costs (i.e., salaries for coaching staff, maintenance for the stadium etc.): TC (Q) = $20, 000, 000 Given this level of demand and your cost structure listed above: A. {3 points) What is the profit maximizing level of output (0*) Note: 9* is a round number in thousands. So please round your answer to the nearest 1000 Step I: Inverse demand function (Q) = 140, 000 7 250!J P : 560 - .004Q Step 2: TR : PQ X Q TR : 560Q .004Q2 Step 3: Prot: TR(Q) 7 TC(Q) 560Q _ .004Q2 7 20,000,000 Step 4: Derivative Marginal Prot 560Q - .004Q2 7 20,000,000 Q : 560 - .004Q2 : 2 X -.004 x Q : .008Q MP: 560 - .008Q Step 5: Find Q" 560 - .008Q : 0 Q* : 70,000 B. (3 points) What is the price that you charge at the prot maximizing level of output (P*)? Find the Optimal price P* Substitute Q* into the inverse demand function 560 - .004Q 560 _ _004(70,000) P* : 280 C. (3 points) Calculate prots at the prot maximizing output level. Substitute Q* into the prot function 560Q - .004Q2 7 20,000,000 560(70,000) - .004(70,000)2 20,000,000 Profit = - 400,000 2. {9 pain ts) Own-price elasticities Continuing the previous problem, your consultant suggests that you can increase prots through price discrimination. He notes that you can segment your market into students and alumni. He notes that you can make students show their student le when they come to the games to prevent on-sclling. He therefore suggests that you consider charging students and alumni different prices. Demand for students is the following 05(PS) = 80,000 ZOOPS A. (3 points) Calculate the elasticity of demand for students at the prot maximi7ing price that you found in Q1 (i.e., with no price discrimination) Demand for alumni is the following QA(PA) = 60, 000 50in, B. (3 points) Calculate the elasticity of demand for alumni at the prot maximi7ing price that you found in Ql (i.e., with no price discrimination) C. (3 points) Based on these elasticities, if you practice third degree price discrimmmion, would you expect to charge higher prices to students or alumni if you decide to price discriminate? EXPLAIN
