Mihir Patel is in charge of a multiplex operated by Majestic Cinema. In an attempt to boost profit, Mihir is considering a two-for-one promotion. Under this scheme, any customer attending a matinee show can exchange their ticket stub for a free pass at the end of the matinee. The pass is valid for the next seven days on any matinee show in any of the screens in the multiplex. Mihir believes the scheme is a winner because just about every matinee has empty seats, and the cost of showing a movie (e.g., projection, utilities) will not change if a matinee attracts a few more patrons.

Mihir estimates that running the promotion will increase overall weekly attendance at matinee shows from 2,000 to 2,500 persons. However, Mihir expects that running the promotion actually will decrease matinee ticket sales from 2,000 to 1,800 (in other words, Mihir expects 700 people to take advantage of the promotion and actually use their free pass). Mihir does not expect the promotion to affect attendance and sales on nonmatinee shows. The average matinee ticket sells for $3.95. Mihir believes that the lost matinee ticket revenue would be offset by increased sales at the concession stand. Moreover, Mihir figures that roughly half of his customers patronize the concession stand. The average moviegoer who visits the concession stand spends a total of $6 on drinks, popcorn, and candy. Variable costs in the concession stand amount to 15% of concession revenue, and weekly fixed costs for the concession stand equal $2,000.

Required:

Calculating controllable costs and benefits, determine the value of the promotion.