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Patrick Street Productions produces musicals - Edexcel - A-Level Economics A - Question 4 - 2021 - Paper 1
Question 4
Patrick Street Productions produces musicals. Its latest production is ‘It’s a Wonderful Life’ and the total cost of this production is $200,000. The ticket price is... show full transcript
Worked Solution & Example Answer:Patrick Street Productions produces musicals - Edexcel - A-Level Economics A - Question 4 - 2021 - Paper 1
Step 1
Calculate the total revenue from ticket sales for ‘It’s a Wonderful Life’
Answer
To calculate the total revenue from ticket sales, we can use the following formula:
Total Revenue = Ticket Price × Number of Seats × Number of Shows
Given that the ticket price is $40, the theatre capacity is 300 seats, and it is shown 5 times:
Total Revenue = 60,000
Thus, the total revenue from ticket sales is $60,000.
Step 2
Calculate the value of the government subsidy necessary for this production to cover all of its costs
Answer
To find the government subsidy needed, we first determine the total revenue that needs to be generated from ticket sales and donations.
Total Costs = $200,000
From ticket sales, we know that this will cover 30% of total costs:
Ticket Sales Revenue = 30% × 60,000
Charitable donations contribute 12.5%, meaning:
Charitable Donations = 12.5% × 25,000
Now, the sum of ticket sales and charitable donations is:
Total Revenue from Ticket Sales and Donations = 25,000 = $85,000
To cover the total costs, we find the government subsidy needed:
Government Subsidy = Total Costs - Total Revenue from Ticket Sales and Donations
Government Subsidy = 85,000 = $115,000
Therefore, the value of the government subsidy necessary for this production is $115,000.