To promote her platinum-selling CD Feels Like Home in 2005, singer Norah Jones toured the country for live performances. However, she sold an average of only two- thirds of the tickets available for each show, T* (Robert Levine, “The Trick of Making a Hot Ticket Pay,” New York Times, June 6, 2005, C1, C4).
a. Suppose that the local promoter is the monopoly provider of each concert. Each concert hall has a fixed number of seats. Assume that the promoter’s cost is independent of the number of people who attend the concert (Ms. Jones received a guaranteed payment). Graph the promoter’s marginal cost curve for the concert hall, where the number of tickets sold is on the horizontal axis (be sure to show T*).
b. If the monopoly can charge a single market price, does the concert’s failure to sell out prove that the monopoly set too high a price? Explain.
c. Would your answer in part b be the same if the monopoly can perfectly price discriminate? Use a graph to explain.