Optimization question - Minimum price increase required

Sam2002

New Member
Joined
Jul 21, 2020
Messages
1
Office Version
  1. 2019
  2. 2016
Platform
  1. Windows
I need a formula to an optimization question on what is the required minimum price to cover costs.
Please question below and advice on the best approach.

Question
A baseball team is interested in hiring a new pitcher. Using the information given below, solve for the minimum increase in average ticket price required to cover the cost of the pitcher over six years (within $0.01). For simplicity, assume all ticket sales are received and all salaries are paid at the end of each year and that the team is not concerned with maximizing profits. The demand elasticity given represents elasticity after the pitcher is hired. (Assume there is no other impact on demand from the new pitcher's presence.)

Current Ticket Price 40.00

Current Attendance 25,000

Capacity Utilization 0.8

Stadium Capacity 31,250

Home Games/Year 120

Demand elasticity -30%

Annual Interest Rate 10%

Year Salary (Millions)

1 21.0

2 10.0

3 20.0

4 40.0

5 45.0

6 150.0



Regards
 

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