Consider the following scenario to answer the following questions: EJH Cinemas,a movie theater next to your university,attracts two types of customers-those who are associated with the university (students,faculty,and staff)and locals who live in the surrounding area.There are 10,000 university customers interested in purchasing movie tickets from EJH Cinemas,with a maximum willingness to pay of $7 per ticket.There are 20,000 local customers interested in purchasing tickets,with a maximum willingness to pay of $9 per ticket.The movie theater incurs a constant marginal cost of $4 per ticket.For simplicity,assume each customer purchases,at most,one ticket.
-What will be the amount of EJH Cinemas' total revenue if the price is $9 per ticket?
A) $250,000
B) $210,000
C) $180,000
D) $140,000
E) $105,000

Question

Quizplus · Accepted Answer

- We know that there are 10,000 university customers and 20,000 local customers interested in purchasing movie tickets from EJH Cinemas.
- The maximum willingness to pay of university customers is $7 per ticket and that of local customers is $9 per ticket.
- The marginal cost incurred by the cinema for each ticket is $4.
- If the cinema sets the price at $9 per ticket, it will be able to sell to both university and local customers.
- However, it will only be able to sell to the local customers if it sets the price at $7 or below.
- Therefore, the cinema's revenue will be the product of the number of tickets sold to university and local customers and the price of the ticket.
- For a price of $9, the university customers will also buy the ticket as their maximum willingness to pay is $7, which is lower than $9. So, the cinema will sell 10,000 tickets to the university customers and 20,000 tickets to the local customers.
- The total revenue will be (10,000 x $7) + (20,000 x $9) = $70,000 + $180,000 = $250,000.
- Therefore, the answer is C) $180,000.

Consider the Following Scenario to Answer the Following Questions: EJH