Question

BYou are running a football program at a large Texas university. Your program has been losing money and you therefore want to work out the profit maximizing price for tickets. You hire a consultant who calculates that you face the following demand curve for season tickets for each game:

Q_d= 144,000 – 240P

He notes that you have a very large stadium (92,589) seats that is never filled. He also notes that most of the costs that your football program faces (i.e., wages for staff, equipment and scholarships for players, maintenance for the large stadium) are fixed costs and do not depend on the number of season tickets that you sell. He therefore estimates that your marginal cost of selling an additional season ticket is 0.

MC=0

The fixed costs for maintenance, salaries for staff, scholarships, equipment etc. are equal to:

TC=$21,800,000

Given this level of demand and your cost structure listed above:

A.What is the profit maximizing level of output (Q*)-please round answer to the nearest thousand

B.What is the price that you charge at the profit maximizing level of output (P*)?

C. Calculate profits at the profit maximizing output level.

Answer 1

cTR-TC=21600000-21800000=-200,000

There is a loss of -200,000 at the optimal level of output.This is because of very high fixed costs.