Suppose that you own a 25 year old movie theater in Micropolis. It has 6 screens and a concession stand. Across town there is a 7 year old movie theater with 4 IMAX screens and 20 more regular screens. Your competitor’s movie theater also has stadium seating for all screens and two concessions stands. Remember this is a small to mid-sized city with a small to moderate sized customer base.
A. For each of the characteristics listed below, evaluate the market for movies in Micropolis. You should clearly state your answer and provide a short statement to support your answer.
Number of firms
Product
Barriers to entry
Pricing power
B. Now that you have looked at these characteristics in question 1, which market structure do you think best fits this example? Remember, none of the market structures will fit perfectly in this example. Which characteristics from your answer in #1 fit this market structure well? Which characteristics do not fit this market structure well?
C. Briefly describe the pricing strategies that perfectly competitive firms and monopolies use. What are the profit expectations for perfectly competitive and monopoly firms in the short-run and the long-run.
D. Do you think that your firm (the small theater) will have substantial pricing power based on the market structure selected in #2? What are your short-run and long-run profit expectations based on your answer in #1 and #2?