The Book Club has paid a famous local poet $1500 to read her latest masterpiece “EconomiX” at their next gathering. The local community has agreed to host the event at a 1000 seat venue in downtown which will cost the club $1,000 for the evening. Lastly, the incremental costs associated with each patron (cleaning, ticketing, security, souvenir brochure, …) adds another $1 per guest. While the club is not run for profit, they do need to make sure they don’t lose too much money or it will jeopardize their ability to promote future events. The club is pondering its ticket price… A local economist has advised them of the following: • The number of patrons will be affected by the ticket price. • Specifically, the number of people who attend will equal 1500 – 300 P where P is the price of one ticket. • She recommends a price of $3
A local “book pricing expert” suggests a different approach: • The venue seats 1000 people • Your costs for a sold out show total $3500 (poet, venue, incremental costs) • This works out as: $3.50/person • You need to charge at least that much or you are guaranteed to lose money. • He recommends a 10% “cost + model” or a price of $3.85 Which advisor’s suggestion would you recommend following? Explain.