The builder of a new movie theater complex is trying to decide how many screens she wants. Below are her estimates of the number of patrons the complex will attract each year, depending on the number of screens available.
Number of screensTotal number of patrons
1…………………………40,000
2…………………………75,000
3…………………………105,000
4…………………………130,000
5…………………………150,000
After paying the movie distributors and meeting all other noninterest expenses, the owner expects to net $2.00 per ticket sold. Construction costs are —$1,000,000 per screen.
a. Make a table showing the value of marginal product for each screen from the first through the fifth. What property is illustrated by the behavior of marginal products?
How many screens will be built if the real interest rate is:
b. 5.5 percent?
c. 7.5 percent?
d. 10 percent?
e. If the real interest rate is 5.5 percent, how far would construction costs have to fall before the builder would be willing to build a five-screen complex?