Economics -- Profits, Costs, and Essay

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Unlike the situation with retail consumer goods whose production costs can be readily amortized by reduction in cost-per-unit production, the theater does not produce tangible goods. Therefore, the marginal cost of entertaining each additional audience member is so small that it becomes negligible. By increasing ticket prices only a dollar or two, the theater could likely maintain most of its clientele and avoid reducing its appeal to new customers, thereby increasing profits.

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Diseconomies would not develop unless or until the theater decided to expand its facilities or to purchase additional movies based on the expectation that a full house could be maintained and then experienced insufficient additional patronage to offset those additional costs (McConnell, Brue, & Flynn, 2008)......

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