Players%20Theater%20Company - PowerPoint PPT Presentation

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Players%20Theater%20Company

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Players Theater Company Should the theater cut prices? The theater has 500 seats; about 200 are filled in a typical performance The PTC has been charging $30/seat – PowerPoint PPT presentation

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Title: Players%20Theater%20Company


1
Players Theater Company
  • Should the theater cut prices?
  • The theater has 500 seats about 200 are filled
    in a typical performance
  • The PTC has been charging 30/seat

2
Demand Function
  • Q f(X1, X2,, Xn)
  • Example
  • Q 117 6.6P 1.66Ps 3.3 Pr .0066I

3
Demand Curve
Ticket Pricein Dollars
Income 50,000 Price of Symphony tickets
50 Price of meal at nearby restaurant 40
60
30
Demand
Quantity of PTC Tickets
200
400
4
Demand Curve
Ticket Pricein Dollars
Income 50,000 ? 51,000 Price of Symphony
tickets 50 Price of meal at nearby restaurant
40
61
60
30
Quantity of PTC Tickets
200
400
406.6
5
Elasticity of Demand
  • Definition
  • ? -( change in Q) / ( change in P)
  • Calculating

6
Arc Elasticity
Ticket Pricein Dollars
60
40
30
Quantity of PTC Tickets
200
133
400
7
Estimates of Price Elasticities
  • Sugar 0.31
  • Potatoes 0.31
  • Tires 1.20
  • Electricity 1.20
  • Haddock 2.20
  • Movies 3.70

8
Total Revenue, Marginal Revenue
  • Total Revenue P x Q
  • Marginal Revenue the change in total revenue
    associated with selling one more unit of the
    product

9
Ticket Price,Marginal Revenue In Dollars
? gt 1
? 1
30
Demand
Q
Total Revenuein Dollars
MR
Total Revenue
Q
10
Other Factors Influencing Demand
  • Prices of related products
  • Complements vs. Substitutes
  • Defining a Market
  • Cross Price Elasticity of Demand

11
Estimates of Cross Elasticities
  • Electricity and Natural Gas 0.20
  • Beef and Pork 0.20
  • Natural Gas and fuel oil 0.44
  • Margarine and Butter 0.81

12
Other Factors Influencing Demand
  • Income
  • Normal vs. Inferior goods
  • Income Elasticity of demand

13
Estimates of Income Elasticities
  • Flour -.36
  • Natural Gas 0.44
  • Margarine -0.20
  • Milk 0.07
  • Dentist Services 1.41
  • Restaurant Consumption 1.48

14
Advanced Issues
  • Network Effects
  • Product Attributes
  • Product Life Cycles

IndustryQuantityof output
Intro
Decline
Growth
Maturity
Time
15
Demand Estimation
  • Interviews
  • Price Experimentation
  • Statistical Analysis
  • Omitted Variables Bias
  • Multicollinearity
  • Identification Problem

16
The Identification Problem
  • Suppose that this is a history of recent price
    and quantity changes in our industry

Year Price Quantity
2004 25 4.5 million
2005 29 5.25 million
2006 22 7 million
17
The Identification Problem
Price in dollars
2005
29
2004
25
2006
22
Industry output In millions
4.5
5.25
7
18
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19
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20
Blank Workspace
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