Oak entertainment is the only movie theater in a small town. The firm can screen movies at a constant average and marginal cost of AC = MC = 10. The firm faces a demand curve given by: Q = 85-0.5P.
a) Justify the assertion that MR = 170-4Q
b) Calculate the firms profit maximizing price and output combinations. What are the firm’s profits?
c) Suppose the firm decided to charge the (maximum) willingness to pay for each movie ticket (perfect price discrimination)? How many tickets would it sell now, and how much profit would it make?