QUESTION

Suppose you own a movie theater, where you have some monopoly power and you make money both at the box office and the popcorn stand.

A) Should you charge a high price for admission and a low price for popcorn, or vice versa? In your answer, make sure you include the following:

i) A diagram representing consumer and producer surplus; as well as any deadweight loss.

ii) Refer to your diagram to explain your answer to the question of which of the two (popcorn or admission) you are going to price competitively and which one you would charge a higher price.

B) Now say you are Disneyland. They also charge two prices: one for admission and one to ride each ride. How is this situation different or similar to the one you discussed in part (A)? In your answer, make sure to include the following:

iii) Why are the two situations (movie theater and Disneyland), similar or different.

iv) A diagram representing consumer and producer surplus; as well as any deadweight loss (please draw a new diagram; do not use the one you used for part a).

v) Refer to your diagram to explain your answer to the question of which of the two (popcorn or admission) you are going to price competitively and which one you would charge a higher price.