intermediate microeconomic theory

Intermediate Microeconomic Theory

1 Stadium seating

The Golden One Center is a monopoly supplier of Sacramento Kings tickets. Suppose that demand to see the Kings is given by p(Q) = √4 . The marginal cost of letting another person

Q

into the stadium equals 1. For simplicity, assume that there are no fixed costs.

  • Write Golden One’s profits in terms of Q. Simplify your answer as much as possible. (Hint: if the marginal cost is 1 and there are no fixed costs, what must C(Q) equal?)
  • Assuming that Golden One is a uniform pricer, how many tickets will it sell (Qm)? What is the socially optimal number of tickets sold (Qc)?
  • If the City Council uses a price regulation, should it use a price floor or a price ceiling? What price floor or price ceiling should it impose?
  • Compute Golden One’s new choice of quantity Qem(s) as a function of s. (Hint: rewrite the profit function accounting for the total subsidy it gets from selling Q units.)

Now suppose that the Sacramento City Council wants to make sure that Golden One sells the socially optimal number of tickets. As we discussed in class, one way to ensure the socially optimal outcome is to regulate the price that Golden One charges.

Now suppose that the City Council gives Golden One a specific (i.e., per-unit) subsidy equal to s for each ticket sold.

For what level of subsidy
s
will Golden One sell the socially optimal quantit