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ECON1

Mr. Red, a rodeo promoter, has some concerns about his business since expanding his arena: 1) He is no longer selling out even though the show is the same or better. An economist would say this is because he has oversupplied seats at the current price. 2) A college student recommended lowering prices based on an economic analysis, which would work to meet the new market equilibrium. 3) Raising prices further is not recommended as it would reduce demand from customers already lost from the expansion. The optimal price to maximize revenue, according to the analysis, would be $14 per ticket.

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Marklaren Sanchez
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291 views

ECON1

Mr. Red, a rodeo promoter, has some concerns about his business since expanding his arena: 1) He is no longer selling out even though the show is the same or better. An economist would say this is because he has oversupplied seats at the current price. 2) A college student recommended lowering prices based on an economic analysis, which would work to meet the new market equilibrium. 3) Raising prices further is not recommended as it would reduce demand from customers already lost from the expansion. The optimal price to maximize revenue, according to the analysis, would be $14 per ticket.

Uploaded by

Marklaren Sanchez
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Mr.

Red Neckerson
THE Premier Rodeo Promoter
Dear Economist,
Howdy Partner! My names is Red and I am THE premier rodeo
promoter around these here parts. Boy howdy, do I have a question for
you. Here’s my sticheeation. For years I have promoted a local rodeo
that has sold out every Saturday night. I charge $15 a ticket and every
seat is sold. Sometimes I even have people waiting outside when all
the seats are sold. This also gives rise to scalpers. Which I HATE. They
get more than $15 a ticket!!! Why does that happen? Recently I
decided to expand and I made my arena bigger by adding 6 new rows
of seats so now I can get 8,000 people in the arena. But, I’m not selling
out anymore! I don’t understand this at all. It’s still the same good
show, maybe even better! Why is this happening? The good news is,
though, the scalpers don’t come around as much. I hired some nerdy
college kid who ram some king of economic analysis and he says what I
need to do is lower my price, which I’m not to thrilled about. Would
that even work? Of course, my instinct is to do some more advertising
and possible even bring in more popular rodeo stars. I’m wondering if
then I could even raise my Prices!? Waddya think?
Mr. Red’s Main Concers
• Scalpers - “They get more than $15 a ticket!!
Why does that happen”
• Expansion – “But, I’m not selling out anymore!
I don’t understand this at all…Why is this
happening?”
• Economic analysis of a nerdy college kid –
“Would that even work”
• Doing more – “Wondering if then I could even
raise my prices!?”
Scalpers - “They get more than $15 a
ticket!! Why does that happen”
• To an economist, the existence of a secondary
market – where tickets are resold is a sign that
they have been undersupplied, underpriced or
a combination of the two.
Expanded – “But, I’m not selling out
anymore! I don’t understand this at
all…Why is this happening?”

PRICE QUANTITY
$15 6800
$18 8000
Price
D1
S1 S2
32

24

18

12

0
1500 3000 4500 6000 7500 9000 Quantity
Economic analysis of a nerdy college
kid – “Would that even work”
• Yes indeed, the economic analysis of the kid
would work. Because lowering the price would
meet the market equilibrium.
Doing more – “Wondering if then I
could even raise my prices!?”
• We would not recommend raising the price,
because it would just lead to lesser demand
from the consumers since he also already lost
some of his costumers.
FINAL EVALUTION
Price Quantity
$15 6800
$14 8000

$15 x 6,800 = $102,000

$14 x 8,000 = $112,000

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