Compare the deadweight loss

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The Shakespeare Theatre has a monopoly on productions of Othello in Washington, DC. They hire you to analyze whether o?ering a “young adult” discount could help increase pro?ts. After some economic analysis, you discover that the demand curve for Othello tickets is di?erent for those under 35 years old than for those over 35 years old. In particular, the demand for the younger crowd is Q D <35 = 620 − 20P, while the demand for the older crowd is QD>35 = 1400 − 40P. Nice job! Shakespeare Theater tells you that their costs are a ?xed $12,350 to put on the show, plus $5 in marginal cost for each individual who attends (same cost regardless of age). (a) If Shakespeare Theatre can separate the two groups (they will just look at IDs to determine age), what price should they charge to each group? How many people from each group will buy tickets? What is the theatre’s total pro?t? (b) If DC passes a law banning age discrimination in pricing, and Shakespeare Theatre can no longer price discriminate (but is still a monopoly) - what price will they charge? What quantity will be sold? What is the total pro?t? (c) Compare the deadweight loss in the two above scenarios. Why is it di?erent?

Reference no: EM131104461

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