Question

Assume the Carolina Cuckoos are a minor league, small town baseball team. The demand for tickets to watch them play is: P = 40 - .005Q.

A. Write down the equation for the MR curve.

b) Depict demand and marginal revenue in a diagram. Label it carefully. (Note: you can append the diagram images anywhere in the file or send them separately).

C. Assume MC = 0, and that stadium capacity is unconstrained. What is the profit maximizing sales and price of tickets? Show all of your work.

d) Suppose that capacity is limited to 3,000 seats. What is the profit maximizing price?

f) Suppose the (fixed) cost of expanding the stadium is $6,000 per additional seat. Calculate the cost of increasing seating capacity to the unconstrained solution you found in part c.

g) Suppose the relevant planning horizon encompasses 1000 games, and ignore issues of discounting. Would the Cuckoos make more or less profit by expanding their stadium?

h) What is the minimum planning horizon (number of relevant games) for which expansion would make economic sense?

Answer 1