Suppose you are the monopoly owner of a movie theater. You can provide popcorn at a marginal cost of 50¢ per bag. It costs you nothing to allow people to enter the theater. You have two customers, Gene and Roger. Gene is willing to pay up to $20 to see the movie, and Roger is willing to pay up to $10. Gene never buys popcorn under any circumstances. Roger's demand for popcorn is the curve in the following graph:

a. Suppose you charge 60¢ for popcorn. What's the highest admission price you can charge if you're determined to keep both customers?
b. How does your answer to (a) change if you charge 50¢ or 40¢ for popcorn? If you want to maximize profits while keeping both customers, what price should you charge for popcorn?
c. Could you do better if you were willing to charge an admission price that drives one of your customers away?
d. How would your answers change if Gene is willing to pay not $20 to see the movie, but $4? What if he's willing to pay $9?$25?

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Price $5 $.60 $1 $2 $1 .50 51 $5 .40 Quantity (oz)