Microeconomics for Dr. Scott.



Week 3 Assignment, due next class

Before submitting your assignment, please make a copy for your own use. Your assignment may not be returned to you before the recitation sessions. Be sure you include:

Name:                                                                    Mail Box #                        

1.         As financial donations have fallen off in the past year, the Museum of Modern Art is considering ways to increase its total revenue.

A.        In particular, the museum is considering increasing its admission fee.  Under what conditions will an increase in the admission fee lead to an increase in revenues for MOMA?  How likely is it that these conditions hold for an organization such as MOMA?

B.        Economists have determined that the cross-price elasticity between the Guggenheim Museum and the MOMA is 0.5.  What does this suggest about the relationship between these two goods?  Explain what will happen to attendance at the Guggenheim if the MOMA increases its admission fee from $8 to $12.  Be as specific as possible.

2.         You manage an art museum.  The demand for visits to your museum (each year) by the average art enthusiast is depicted below.

A.        You currently charge a $10 entrance fee, per museum visit.  How many times a year does your average enthusiast visit your museum?  What is the consumer surplus they gain from this?

B.        If you were to eliminate your entrance fee (i.e., charge $0 per visit), how many times a year would your average enthusiast come to your museum?  What would their consumer surplus be?

C.        You have considered changing from an entrance fee system to one of membership.  With a membership, individuals purchase the membership for the year, paying a one-time fee.  They can then visit the museum as many times that year as they like, and pay nothing to get into the museum on each visit.  What is the maximum you can charge for that membership?  This part is based on an exam question


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