Kelsey Nicolosi is the general manager of a multiplex movie theater. In order to boost profits, Ms. Nicolosi is considering a two-for-one promotion, in which any customer attending a matinee show could exchange their ticket stub for a free pass at the end of the matinee. The free pass would be valid for any matinee show at the multiplex in the next seven days. Ms. Nicolosi thinks this idea is a winner because just about every matinee show has empty seats, and the cost of showing a movie (e.g., projection, utilities) would be unaffected if a matinee showing attracts a few more patrons.
Mr. Nicolosi estimates that running the promotion would increase total weekly matinee attendance from 2,000 patrons to 2,500 patrons. However, the number of paying patrons he thinks would drop from 2,000 to 1,800 (so how many people would take advantage of the promotion?)
Ms. Nicolosi does not think the promotion would affect regularly priced ticket sales in the evening and weekends. The average price of a matinee ticket is $3.95.Ms. Nicolosi believes that the lost matinee ticket revenue would be offset by increased sales at the concession stand. Based on counts taken at the concession, Ms. Nicolosi thinks that about half his customers vist the concession stand and spend an average of $6 on popcorn, candy, and drinks. Variable costs in concession stand amount to 15% of concession revenue and weekly fixed costs for the concession stand are $2,000.
3-1. Would this promotion pay off for Ms. Nicolosi?
3-2. At what level of customers using the promotion deal would the promotion just break even? So is this a reasonable idea or not, since Ms. Nicolosi is estimating the level at which the promotion would be used?
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