Question

The Grand Theater is a movie house in a medium-sized college town. This theater shows unusual

films and treats early-arriving movie goers to live organ music and Bugs Bunny cartoons. If the

theater is open, the owners have to pay a fixed nightly amount of $500 for films, ushers, and

so on, regardless of how many people come to the movie. For simplicity, assume that if the

theater is closed, its costs are zero. The nightly demand for Grand Theater movies by students

is QS = 220%u221240PS, where QS is the number of movie tickets demanded by students at price PS.

The nightly demand for nonstudent moviegoers is QN = 140%u221220PN .

(a) If the Grand Theater charges a single price, P, to everybody, then at prices between 0 and

3

$5.50, the aggregate demand function for movie tickets is Q(P) = . Over this range of prices,

the inverse demand function is then P(Q) = .

(b) What is the profit-maximizing number of tickets for the Grand Theater to sell if it charges

one price to everybody? . At what price would this number of tickets be sold? . How much

profits would the Grand make? . How many tickets would be sold to students? . To

nonstudents? .

(c) Suppose that the cashier can accurately separate the students from the nonstudents at the

door by making students show their school ID cards. Students cannot resell their tickets and

nonstudents do not have access to student ID cards. Then the Grand can increase its profits by

charging students and nonstudents different prices. What price will be charged to students? .

How many student tickets will be sold? . What price will be charged to nonstudents? . How

many nonstudent tickets will be sold? . How much profit will the Grand Theater make?