Problem:
You have decided to become a rock concert promoter and have made arrangements with Jerry Jones (and Arlington) to rent the new Texas Stadium for one night for a cost of $1,000,000 plus a $7 per ticket "participation" fee. (He keeps parking and concessions, but handles all security, personnel, clean-up, liability etc). The stadium will seat 80,000 people in "rock concert" configuration. You have decided that a $750,000 advertising budget is appropriate and you've negotiated for the Rolling Stones to put on the concert where they supply everything including lights stages etc. Thus you should have no other costs than those mentioned here. At this point, excluding the cost of the band, your "per ticket" cost structure before fixed costs looks like this:
Ticket price per seat $100 (given)
Ticket-master printing and distribution of tickets $5
Taxes to Texas and City of Arlington $8
Jerry Jones 'participation" fee $7
Total per ticket costs excluding cost of band $20
Mick Jagger, front man and long time manager of the Rolling Stones, who just happens to have studied at the London School of Economics, has offered you two alternative deals to pay the band:
A) $2,000,000 guaranteed minimum plus $15 per ticket sold
B) Zero guaranteed minimum plus $45 per ticket sold
You are concerned that you might not be able to "sell out" the 80,000 capacity (or that you'd have to consider discounting which amounts to the same thing).
(1) What is your projected profit under the guarantee deal A) if 52,000 tickets are sold?
(2) What is your projected profit under the guarantee deal A) if 80,000 tickets are sold?
(3) What is your projected profit under the no guarantee deal B) if 52,000 tickets are sold?
(4) What is your projected profit under the no guarantee deal B) if 80,000 tickets are sold?
(5) What is your "break-even" number of ticket sales under the guarantee deal A)?
(6) What is your "break-even" number of ticket sales under the no guarantee deal B)?