Scenario 10.4:
The demand for tickets to the Katy Perry concert (Q) is given as follows:
Q = 120,000 - 2,000P
The marginal revenue is given as:
MR = 60 - .001Q
The stadium at which the concert is planned holds 60,000 people. The marginal cost of each additional concert goer is essentially zero up to 60,000 fans, but becomes infinite beyond that point.
-Refer to Scenario 10.4. Suppose that the municipal stadium authority imposes a tax of $10 per ticket on the concert promoters. Given the information above, the profit maximizing ticket price would:

Question

Quizplus · Accepted Answer

The tax effectively increases the marginal cost of each ticket sold by $10. In a situation where the marginal cost is initially zero, the imposition of a tax shifts the supply curve upward by the amount of the tax. However, due to the inverse relationship between price and quantity demanded, the full amount of the tax is rarely passed on to consumers in the form of higher prices. Instead, the price typically increases by an amount less than the tax. Given the elasticity of demand and the specific details provided, the profit-maximizing strategy would involve absorbing part of the tax and passing part of it onto consumers, resulting in a price increase smaller than the tax itself. Without the specific demand elasticity, we can't calculate the exact split, but the principle that the price increase is less than the tax applies, making an increase by $5 a reasonable outcome given the scenario.

Scenario 10.4: The Demand for Tickets to the Katy Perry Concert (Q)