Microsoft Essay

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Monette S. Villafranca Managerial Economics MBA 1. QuadPlex Cinema is the only movie theater in Idaho Falls. The nearest rival movie theater, the Cedar Bluff Twin, is 35 miles away in Pocatello. Thus QuadPlex Cinema possesses a degree of market power. Despite having market power, QudPlex Cinema is currently suffering losses. In conversation with the owners of QuadPlex, the manager of the movie theater made the following suggestions: “QuadPlex is a local monopoly, we should just increase ticket prices until we make enough profit.” a. Comment on this strategy Answer: Monopolies are usually inefficient and carry dead weight loss it’s to do with demand and supply raising prices will lower demand and may even be negative for the company to do so especially if they are running losses at the moment. A monopolist, although the only supplier in the market, still faces the constraint of the market demand. Suppose that a monopolist is suffering losses even though is changing the price associated with the level output at which MR = SMC. If the QuadPlex raises price, even larger losses will be incurred. A monopoly market structure is no guarantee that a cinema can earn economic profits. b. How might the market power of QuadPlex Cinema be measured? Answer: Market power has its limits. In this case, we cannot increase indefinitely the price of the ticket or the good, because the consumer's breakeven point will come into play and he/she will switch the use of the ticket to some other usage c. What option should QuadPlex consider in the long run? Answer: This QuadPlex Cinema could add other usage to its existence, such as movies and conference, avenues, entertainment world, usage of the recent technology. It has its physical location intact but should change its marketing to new or newer usage of its physical environment. 2. The El Dorado

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