Roxy
Case discussion: “Will The Roxy Theater Maximize Profits by Eliminating its Student
Discount?”
Read the case “Will The Roxy Theater Maximize Profits by Eliminating Its Student
Discount?” by B. Peter Pashigian. Based on the facts in the case, answer the following questions: (a)
Does The Roxy have market power?
(b)
Can The Roxy price discriminate between students and the general public?
(c)
Suppose that The Roxy keeps its prices intact. What would be the demand for tickets?
(d)
Given your answer to (c), do you believe the Roxy should change its prices, and if so should it raise prices or lower them? Explain your answer.
(e)
Is it a good idea for The Roxy to set prices such that there will be excess demand for seats? Why or why not?
(f)
Assume that in 1995, the prices that The Roxy charged, $6 for the general public and
$4.80 for students were optimal (these prices maximized the profits of The Roxy).
Using this fact, what can you conclude about the elasticity of demand for tickets by the general pubic and by students? Given your answer is it a good idea to eliminate students’ discounts (i.e., change $6 from all customers).
(g)
Assume once again that the prices that The Roxy charged in 1995 were optimal, and assume in addition that the inverse demand functions of general public and students are linear. That is, assume that the inverse demand function of the general public is p
= AG – bGQ, where p is the price, Q is the quantity, and AG and bG are positive parameters, and likewise, the demand function of students is p = AS - bSQ, where AS and bS are positive parameters. Given these assumptions, compute the optimal prices that The Roxy should set. Explain your answer carefully.
Discount?”
Read the case “Will The Roxy Theater Maximize Profits by Eliminating Its Student
Discount?” by B. Peter Pashigian. Based on the facts in the case, answer the following questions: (a)
Does The Roxy have market power?
(b)
Can The Roxy price discriminate between students and the general public?
(c)
Suppose that The Roxy keeps its prices intact. What would be the demand for tickets?
(d)
Given your answer to (c), do you believe the Roxy should change its prices, and if so should it raise prices or lower them? Explain your answer.
(e)
Is it a good idea for The Roxy to set prices such that there will be excess demand for seats? Why or why not?
(f)
Assume that in 1995, the prices that The Roxy charged, $6 for the general public and
$4.80 for students were optimal (these prices maximized the profits of The Roxy).
Using this fact, what can you conclude about the elasticity of demand for tickets by the general pubic and by students? Given your answer is it a good idea to eliminate students’ discounts (i.e., change $6 from all customers).
(g)
Assume once again that the prices that The Roxy charged in 1995 were optimal, and assume in addition that the inverse demand functions of general public and students are linear. That is, assume that the inverse demand function of the general public is p
= AG – bGQ, where p is the price, Q is the quantity, and AG and bG are positive parameters, and likewise, the demand function of students is p = AS - bSQ, where AS and bS are positive parameters. Given these assumptions, compute the optimal prices that The Roxy should set. Explain your answer carefully.