31 May 1. Oak entertainment is the only movie theater in a
Question
a) Calculate the firms profit maximizing price and output combinations. What are the firm’s profits?
b) Suppose the firm decided to charge the (maximum) willingness to pay for each movie ticket? How many tickets would it sell now, and how much profit would it make?
c) Suppose the firm’s management decides it would be too cumbersome to try and estimate the willingness to pay for each ticket, as in plan (a) above. Instead, they opt to sell, for a fixed fee, an “Oak Movies Club Pass”. They will also charge an additional ticket (price) per movie (not necessarily the same price as in (a) above). Assume that everyone will need a club pass to see the movies.
i. How much (in total) would the firm have to collect from the Club Pass (total fixed fee) in order to maximize profits?
ii. How much would the “additional ticket (price) per movie” be, to maximize profits with this plan?
iii. How much profit would the firm make with this plan – combining a fixed club fee and an additional ticket per movie?
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