Question

The owners of the Tampa Bay Buccaneers have seen demand for season tickets decline steadily, probably because the team’s performance is ranked near the bottom of 32 teams in the National Football League. The team owners are now considering a decrease in season ticket prices. Using graphical analysis, show that when demand decreases for a monopolist, price must be cut to maximize profit.

Answer 1

A monopolist's demand curve is given by the AR curve that he faces. In this analysis, we can see that the demand curve will shift to the left, since the demand reduces because of a factor other than the price of the tickets. Hence, the following diagram can be obtained -

In the diagram -

• The demand curve is AR1 before the change in demand
• The corresponding MR1 curve
• The MC curve intersects the MR1 curve to determine the quantity Q1, for which the price is P1 on the AR1 curve.
• The demand curve is AR2 after the change in demand
• The corresponding MR2 curve
• The MC curve intersects the MR2 curve to determine the quantity Q2, for which the price is P2 on the AR2 curve.
• We can see that the price P2 is less than P1 after the reduction in demand.