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Financial mathematics: find benefits

  1. Mar 22, 2014 #1

    939

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    1. The problem statement, all variables and given/known data

    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".

    2. Relevant equations

    N/A

    3. 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.
     
    Last edited: Mar 22, 2014
  2. jcsd
  3. Mar 22, 2014 #2

    mfb

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    2016 Award

    Staff: Mentor

    Okay.
    Where, how?
    Area of what?
    How is gross benefit defined in your course?
     
  4. Mar 22, 2014 #3

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    Без імені.jpg

    Area of the triangle of "benefits" shown above.

    The area above price and below the demand curve. "Consumer surplus" and "producer surplus".
    Consumer_Surplus.png
    But because there is no supply curve, I assume we can just find consumer surplus and call it benefits.
     
  5. Mar 23, 2014 #4

    mfb

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    Staff: Mentor

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

    Okay, I agree.
     
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