The figure given below shows the demand curves of two classes of buyers for tickets to a football match. Figure 24.4 D₁: Demand curve of group 1
D₂: Demand curve of group 2
MR₁: Marginal revenue of group 1
MR₂: Marginal revenue of group 2
MC: Marginal cost
Refer to Figure 24.4.What price must be charged to both the groups to maximize profits?

Question

The figure given below shows the demand curves of two classes of buyers for tickets to a football match. Figure 24.4

D₁: Demand curve of group 1
D₂: Demand curve of group 2
MR₁: Marginal revenue of group 1
MR₂: Marginal revenue of group 2
MC: Marginal cost
Refer to Figure 24.4.What price must be charged to both the groups to maximize profits?

Quizplus · Accepted Answer

To maximize profits, the price must be set where the total marginal revenue equals total marginal cost. In this case, the marginal cost is not given, but it can be inferred that it is constant since it is not changing with the quantity sold. At quantity Q1, the marginal revenue for group 1 (MR₁) equals the marginal revenue for group 2 (MR₂). This is the point where the total marginal revenue is maximized. At this point, the price that group 1 is willing to pay (P₁) and the price that group 2 is willing to pay (P₂) are both higher than the marginal cost. Therefore, to maximize profits, group 1 must be charged P₁ and group 2 must be charged P₂.

The Figure Given Below Shows the Demand Curves of Two