Question

Let demand for tickets to the movies in Adelaide in summer months be represented by the following demand schedule:

price $	quantity demanded （per summer month）
20	0
18	100
16	200
14	300
12	400
10	500
8	600
6	700
4	800
2	900

Suppose that all movie theatres are owned by one company such that movie tickets are supplied by a monopolist, with a constant marginal cost of $4.   

a) Calculate what number of movie tickets will be sold, and the price, if the monopolist sets the same price for all tickets and illustrate this on a clearly labelled diagram.

b) Calculate how much deadweight loss exists in the Adelaide movie market under this single-price monopolist and illustrate this on your diagram.
Now suppose that winter has come and the quantity of movie tickets demanded at each price doubles. Assume the marginal cost is still constant at $4.

c) Calculate what number of movie tickets will be sold per winter month by the monopolist, and the price, and show this on a new diagram.

d) Now imagine that the monopolist can distinguish between two types of consumers: children and adults. With the aid of a new diagram, illustrate what price is likely to be charged for children’s tickets and what price is likely to be charged for adult tickets. Using concepts of consumer surplus, producer surplus and deadweight loss, explain who gains and who loses from this third-degree price discrimination. [You don’t have to give an exactly calculated price, just indicate whether the prices would be different from each other and from the price the single-price monopolist would charge.]

Answer 1