The marginal cost of an additional baseball fan is zero, so the profit-maximizing condition simplifies to _________.
Question:
The marginal cost of an additional baseball fan is zero, so the profit-maximizing condition simplifies to _________.
Transcribed Image Text:
Application 1 MARGINAL REVENUE FROM A BASEBALL FAN APPLYING THE CONCEPTS #1: How does a monopolist maximize profit? We expect the owner of a major league baseball (MLB) team to choose the quantity (the number of fans at the game) at which marginal revenue equals marginal cost (MR = MC). The mar- ginal cost of an additional fan is close to zero, so the profit- maximization rule simplifies to MR = 0. And yet for the typical team, it appears that MR is actually negative: adding fans by selling more tickets actually decreases total revenue from tick- ets. What explains this puzzling behavior? We can illustrate the puzzle with a simple example. Sup- pose that with a ticket price of $24, the team sells 20,000 tickets. If the slope of the demand curve is -0.002, marginal revenue is $16: MR = $24 – 0.002 × 20,000 – –16 In this case, cutting the price to sell one more ticket generates good news ($24 collected from the new fan) that is less than the bad news (the $40 lost on the 20,000 fans who would have paid the higher price). The marginal revenue is negative, so the team could increase its total revenue from tickets by increasing the price and decreasing the quantity of tickets sold. Why don't MLB teams increase their ticket prices? The solution to this puzzle is concessions. Suppose the average MLB fan spends $20 per game on merchandise that costs the owner about $4 to provide. In this case, each ticket sold generates an additional $16 in net concession revenue to the owner, just enough to offset the $16 revenue loss on ticket sales. Once we expand the definition of marginal revenue to include the net revenue from concessions, the owner's choice is consistent with profit maximization. What appears to be too low a price could be just about right.
Fantastic news! We've Found the answer you've been seeking!
Step by Step Answer:
Answer rating: 100% (4 reviews)
The description provided discusses the concept of marginal revenue and profit maximization in the co...View the full answer
Answered By
Muhammad Umair
I have done job as Embedded System Engineer for just four months but after it i have decided to open my own lab and to work on projects that i can launch my own product in market. I work on different softwares like Proteus, Mikroc to program Embedded Systems. My basic work is on Embedded Systems. I have skills in Autocad, Proteus, C++, C programming and i love to share these skills to other to enhance my knowledge too.
3.50+
1+ Reviews
10+ Question Solved
Related Book For
Microeconomics Principles Applications And Tools
ISBN: 9780134078878
9th Edition
Authors: Arthur O'Sullivan, Steven Sheffrin, Stephen Perez
Question Posted:
Students also viewed these Business questions
-
Consider a baseball team that has a ticket price of $45 and sells 30,000 tickets at this price. The slope of the demand curve is - $0.002. The typical fan purchases $25 worth of merchandise that...
-
We expect the owner of a major league baseball (MLB) team to choose the quantity (the number of fans at the game) at which marginal revenue equals marginal cost (MR = MC). The marginal cost of an...
-
The End of the Capitalist Era, and What Comes Next: 1. Pre-reading: Read the title to figure out what is the text about and read the short biography about the author 2. While reading the text:...
-
Simplify each expression in Problems 722. Classify each answer by number of terms and degree. (x + 2y3z) - (x - 5y + 4z)
-
In their annual reports to stockholders, companies must report or disclose information about all liabilities, including potential liabilities related to environmental clean-up. There are many...
-
Plot the point (4, 3.5) when the point is given in (a) Rectangular coordinates. (b) Polar coordinates.
-
What is creativity?
-
John Wiley Publishing Company publishes an operations management textbook that is scheduled for a revision. The book has been moderately successful, but each year more new books enter the market,...
-
QUESTION FOUR The increasing demand in risk management on the part of organizations has been identified as a general societal trend emphasizing public accountability and responsibility. State and...
-
Consider the market for television signals provided to residential consumers. How will an existing cable-TV provider respond to the entry of a firm that provides TV signals via satellite? In most...
-
Recall the Application on Native American casinos in Michigan. Why arent similar deals proposed for new clothing stores, music stores, or auto repair shops? Application 2 RENT SEEKING FOR TRIBAL...
-
Cepeda Corporation has the following cost records for June 2017. Instructions (a) Prepare a cost of goods manufactured schedule for June 2017. (b) Prepare an income statement through gross profit for...
-
How can hubris impede strategic thinking?
-
After identifying potential project risks, the project team should then ___________________. a. develop risk response plans for all identified risks. b. wait for the sponsor to conduct a risk...
-
Describe use cases for a project timeline versus a Gantt chart.
-
According to the PMBOK, the rough order of magnitude for the summary budget within the project charter is ___________________. a. 100% to 200% accuracy b. 25% to +75% accuracy c. 5% to +10% accuracy...
-
What is the relationship between an organizations mission and vision and strategic thinking and strategic management?
-
Discuss how the four Ps of marketing are utilized in your restaurant.
-
Smiths Family Fashions implemented a balanced scorecard performance measurement system several years ago. Smiths is a locally owned clothing retailer with fashions for men, women, teens, and...
-
When is the stated interest rate of a debt instrument presumed to be fair?
-
What are the considerations in imputing an appropriate interest rate?
-
Differentiate between a fixed-rate mortgage and a variable-rate mortgage.
-
GGT Industries manufactures 23,000 units of a particular component each year. The component's annual manufacturing costs for this level of production are: Direct Materials $147,000 Direct Labor...
-
From past experience your marketing department has determined that you need to load 50 m of cargo into a 40-ft standard container, in order to quote your clients an all-inclusive rate of US $58.00...
-
Egg white has a proton concentration of approximately 0 . 0 0 0 0 0 0 0 1 M ( 1 0 % ) . How would you categorize egg white?
Study smarter with the SolutionInn App