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To: Don Lloyd who wrote (325)	11/30/2003 9:50:36 PM
From: Wildstar	Read Replies (1) \| Respond to of 445

Don, If the lot will be replaced, then it will be the marginal replacement cost that will determine how much much the revenue maximizing price will be increased. It has something to do with it not making sense to sell a product at a relatively disadvantageous price when I can avoid the replacement cost by keeping it. I think I understand. I think an example using movie theaters might be appropriate. Suppose I am the monopoly owner of a movie theater complex with 5 screens, each able to show movies to 200 people at a time. Consumers have their own subjective preferences for movie tickets, other goods, and money, which determines a revenue vs. price curve for movie tickets which has a PEAK. My goal will be to set the price of movie tickets at PEAK. There will be large sunk costs for the theater complex. There will also be constant costs associated with paying employees, upkeep, etc. That's all well and good, but what those costs actually are does not affect the price I set because the revenue I generate is maximized at PEAK. However, suppose - 1) That the PEAK occurs at a price which requires 1,200 tickets to be sold. However, I only have 1,000 seats. In this case I'm not sure what happens. I would probably raise prices beyond PEAK to try to maximize total revenue. 2) Actually, now that I think about it, this may not be the best example. The marginal cost of replacement of the last ticket is...? A new theater screen? In that case, the price I charge for tickets will be higher? Wildstar