Financial mathematics: find benefits

[939]

Homework Statement

City "A" wants to measure benefits of a stadium it built. Currently admission is free and 10 000 people per month visit the stadium.

In a comparable city, a similar stadium charges $5 for admission and receives 2000 visitors per month.

Assume a linear demand curve goes through these two points. Estimate the gross benefit of the stadium in city "A".

Homework Equations

N/A

The Attempt at a Solution

Method:
1) Linear line is drawn with both points, i.e. (0, 10 000) and (5, 2000) on it;
2) Draw a horizontal line from the linear line to the y-axis;
3) Find the area.

But I am not sure if this is the right method. Does anyone have any idea what method could be used? There was nothing else said in the question.

 

[mfb]

1) Linear line is drawn with both points, i.e. (0, 10 000) and (5, 2000) on it;

Okay.

2) Draw a horizontal line from the linear line to the y-axis;

Where, how?

3) Find the area.

Area of what?

But I am not sure if this is the right method.

How is gross benefit defined in your course?

 

[939]

Where, how?
Area of what?

Area of the triangle of "benefits" shown above.

How is gross benefit defined in your course?

The area above price and below the demand curve. "Consumer surplus" and "producer surplus".

But because there is no supply curve, I assume we can just find consumer surplus and call it benefits.

 

[mfb]

View attachment 67893

Area of the triangle of "benefits" shown above.

Why did you draw it at ($5, 2000)? This point is nothing special.

The area above price and below the demand curve. "Consumer surplus" and "producer surplus".

But because there is no supply curve, I assume we can just find consumer surplus and call it benefits.

Okay, I agree.