Use the following information to answer the following questions: The accompanying figure depicts the demand (D)curve for general admission concert tickets to see ECON-Jammin',the world's first economics rock band,which is scheduled to visit your city next month.The concert venue can accommodate 100 fans with a marginal cost (MC)of $10 per person.

-ECON-Jammin' has recently discovered that its fans are made up of two distinct groups that can be easily distinguished.The band has decided to utilize its economic knowledge and offer a high-priced ticket of $40 per person and a low-priced ticket of $20 per person.Based on this information,what is the profit earned by the sales of the low-priced ticket?
A) $200
B) $300
C) $400
D) $500
E) $600

Question

Use the following information to answer the following questions: The accompanying figure depicts the demand (D)curve for general admission concert tickets to see ECON-Jammin',the world's first economics rock band,which is scheduled to visit your city next month.The concert venue can accommodate 100 fans with a marginal cost (MC)of $10 per person.
 
-ECON-Jammin' has recently discovered that its fans are made up of two distinct groups that can be easily distinguished.The band has decided to utilize its economic knowledge and offer a high-priced ticket of $40 per person and a low-priced ticket of $20 per person.Based on this information,what is the profit earned by the sales of the low-priced ticket?
A) $200 
B) $300 
C) $400 
D) $500 
E) $600

Quizplus · Accepted Answer

First, we need to find the quantity demanded at each price point. 
At a price of $40, quantity demanded is 40.
At a price of $20, quantity demanded is 60.
Total quantity demanded is 100.
Since the venue can only accommodate 100 fans, the band cannot sell more than 100 tickets and needs to sell all the tickets. 
Therefore, they will sell 40 high-priced tickets and 60 low-priced tickets. 
The total revenue from high-priced tickets will be 40 x $40 = $1600.
The total revenue from low-priced tickets will be 60 x $20 = $1200.
Total revenue will be $1600 + $1200 = $2800.
Total cost (MC x Quantity) will be $10 x 100 = $1000.
Profit will be $2800 - $1000 = $1800.
Since the question asks only for the profit earned by sales of the low-priced ticket, we need to subtract the cost associated with the low-priced tickets only. 
Low-priced ticket cost will be $10 x 60 = $600.
Profit earned by sales of the low-priced ticket will be $1200 - $600 = $600.
Therefore, the correct answer is B) $300.

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