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Movie theaters charge differing prices to adults, children, and students, additionally, most theatres charge lower prices for afternoon showings. Discuss pricing strategy and how it can maximize profits for the movie theater.

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The pricing strategy that you describe here is called price discrimination.  Price discrimination of this sort can help maximize profits for the movie theater by adjusting prices based on the different price elasticity of demand displayed by different segments of the market.

Let us imagine that students and children have a higher price elasticity of demand.  They have less disposable income and so any increase in the price of the movie makes them much less likely to attend.  Conversely, if the theater reduces the price of the movie, many more students and children are likely to attend.  Therefore, it makes a lot of sense for the theater to reduce prices for these two groups.  When the theater reduces prices, it attracts people who would not have come to watch the movie at the higher price. 

Of course, the theater could just lower the prices for everyone, but this would not maximize its revenue.  We assume that adults have a lower price elasticity of demand for movies.  They do not really care if the movie costs $1 or $1.50 more or less.  Lowering the price for adults will not bring more adults in.  Instead, it will simply cause the theater to lose money because they are selling tickets to the adults for less than the adults would be willing to pay.  By charging different prices, the theater gets more of the younger patrons without losing money on the adult viewers.

A similar dynamic occurs with matinee showings.  If not very many people would come to these showings (because of the less convenient time), it makes sense to reduce the price.  It is better to have more people coming at a slightly lower price than fewer people coming at a slightly higher price.  This, too, is a way of increasing and maximizing revenue.

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