Lecture 6. Firms and Markets in the Performing Arts Nonprofits and For-Profits. Professor Julia Lowell

Transcription

1 Lecture 6 Firms and Markets in the Performing Arts Nonprofits and For-Profits Professor Julia Lowell lowell@econ.ucsb.edu Spring /18/2012 Econ 191ac -- Lecture 6 1

2 Outline: Lecture 6 Go over HW5 (due today) Key points from Lecture 5: Organizations in the nonprofit performing arts Microeconomics of the live performing arts Firms and markets in the performing arts the commercial arts Homework for Monday 4/23 4/18/2012 Econ 191ac -- Lecture 6 2

3 Tips on Data Collection (for Project Homeworks) Always make sure your name is on your work, even if e- mailed. On Excel spreadsheets, put it on each sheet Always give the date (year) associated with the data Always reference data sources somewhere on page, even if they are the data sources I asked for, e.g., Census Bureau, 2007 Economic Census Bureau of Labor Statistics, Occupational Employment Statistics, May 2009 Whenever possible, present data elements in the order they were given in the assignment (pop, 65+, non-english, etc.) Always check the class website for information on where to get data, how to get data, etc. 4/18/2012 Econ 191ac -- Lecture 6 3

4 Class Project Homework (HW4) for Monday 4/16 (1) First step toward class project report on Excel sheet (1) Choose 5 U.S. metropolitan areas that had populations of 80,000 to 400,000 in 2010 Data: US Census Bureau, Census 2000, (try the ranking and comparisons tables) (2) For each metro area, report Population Percent of population 65 years and older Percent speaking a language other than English at home Percent that are college-educated (BA or higher) Per capita money income Percent of persons below poverty line Data: US Census Bureau, State and County Quick Facts (navigate from Census 2010 page) 4/16/2012 Econ 191ac -- Lecture 5 4

5 (HW4) for Monday 4/16 The Cities You Chose (1) Econ 191ac SPRING 2012 Initial Cut at Cities: Class Project CITY STATE STUDENT STUDENT STUDENT STUDENT STUDENT Anchorage AK Bell Sawamura Huntsville AL Adler Tiow Montgomery AL Algert Flagstaff AZ Gilmartin Scottsdale AZ Uriarte Tempe AZ Bell Yuma AZ Tiow Anaheim CA Ayers Lembke Marenco Uriarte Berkeley CA Imru Chico-Paradise CA Algert Gilmartin Compton CA Hussein Huntington Beach CA Bell Irvine CA Ayers Uriarte Merced CA Gilmartin Kin Oceanside CA Ayers Oxnard CA Ayers 4/16/2012 Econ 191ac -- Lecture 5 5

6 (HW4) for Monday 4/16 The Cities You Chose (2) Econ 191ac SPRING 2012 Initial Cut at Cities: Class Project CITY STATE STUDENT STUDENT STUDENT STUDENT STUDENT Redding CA Lembke San Mateo CA Marenco Santa Barbara (city/msa) CA Benton Kin Marenco Ong Sawamura Santa Monica CA Hussein SLO-Atascadero-Paso Robles CA Algert Benton Gilmartin Sunnyvale CA Hussein Thousand Oaks CA Ayers Torrance CA Hussein Vallejo CA Hussein Boulder CO Marenco Bay County FL Ong Miami FL Uriarte Panama City FL Sawamura Tallahassee FL Lembke Columbus GA Adler Savannah GA Algert Bloomington-Normal IL Schaefer 4/16/2012 Econ 191ac -- Lecture 5 6

7 (HW4) for Monday 4/16 The Cities You Chose (3) Econ 191ac SPRING 2012 Initial Cut at Cities: Class Project CITY STATE STUDENT STUDENT STUDENT STUDENT STUDENT Springfield IL Imru Topeka KS Adler Tiow Baton Rouge LA Ong Tiow Benton Harbor MI Benton Minneapolis-St. Paul MN Lembke Billings MT Algert Trenton NJ Ong Reno NV Adler Imru Kin Cincinnati OH Imru Eugene OR Bell Eugene-Springfield OR Schaefer Erie PA Kin Pittsburgh PA Imru Myrtle Beach SC Sawamura Sioux Falls SD Benton Lembke Abilene TX Schaefer Arlington TX Uriarte 4/16/2012 Econ 191ac -- Lecture 5 7

8 (HW4) for Monday 4/16 The Cities You Chose (4) Econ 191ac SPRING 2012 Initial Cut at Cities: Class Project CITY STATE STUDENT STUDENT STUDENT STUDENT STUDENT Brownsville-Harlingen-San Benito TX Schaefer Bryan City TX Tiow Bryan-College Station TX Kin Waco TX Adler Benton Salt Lake City UT Marenco Burlington VT Schaefer Grant (county) WA Yang Skagit (county) WA Yang Thurston (county) WA Yang Vancouver WA Bell Whatcom (county) WA Yang Yakima (county) WA Yang Green Bay WI Gilmartin Ong Cheyenne WY Sawamura 4/16/2012 Econ 191ac -- Lecture 5 8

9 Class Project Homework for Wednesday, 4/18 Get data for each of your cities (or metro areas) number of establishments (by tax status if available) receipts/revenue number of employees For architectural services historical sites theater companies graphic design establishments sound recording studios If the data don t exist at the city level, try the metro level. If not at the metro level, just report that data weren t found. Source: U.S. Census Bureau, Economic Survey 2007, Industry Surveys by Geographic Area 4/16/2012 Econ 191ac -- Lecture 5 9

10 FROM LECTURE 5 COSTS OF LIVE PERFORMING ARTS FIRMS 4/18/2012 Econ 191ac -- Lecture 6 10

11 Why Do Nonprofits Get So Many Tax Breaks? Provide a public benefit Encourage citizens to become engaged Provide high quality product or service Can t operate without subsidy Consumers total willingness to pay doesn t cover fixed costs 4/18/2012 Econ 191ac -- Lecture 6 11

12 Fixed vs Variable vs Sunk Costs Fixed costs Do not vary with the quantity of output produced Variable costs Vary with the quantity of output produced Sunk costs Cannot be recovered or reversed if the activity is ceased 4/18/2012 Econ 191ac -- Lecture 6 12

13 Fixed vs Variable Costs of Staging a Musical or an Opera (2) Depends on the unit of output venue rental or mortgage payment rehearsal time scenery, props, costumes (for theatre & opera) salaries of managers, actors, singers, musicians wages of stagehands & technical crew wages of ushers and ticket-takers wages of back-office personnel advertising & publicity Units of output tickets (seats) sold tickets (seats) available for sale performance production 4/18/2012 Econ 191ac -- Lecture 6 13

14 Fixed vs Variable Costs of Staging a Play or an Opera Variable costs per production; fixed costs per performance venue rental or mortgage payment (?) rehearsal time scenery, props, costumes wages of back-office personnel (?) advertising & publicity Variable costs per performance salaries of managers (?) salaries of actors (?) wages of stagehands, technical crew, ushers, etc. 4/18/2012 Econ 191ac -- Lecture 6 14

15 MICROECONOMICS OF FIRMS (ORGANIZATIONS) IN THE LIVE PERFORMING ARTS 4/18/2012 Econ 191ac -- Lecture 6 15

16 Microeconomics of the Live Performing Arts Firm (1) Let Unit revenue be measured by price/ticket Unit cost be associated with cost/seat in open-ended run Then What shape is the demand curve? Marginal revenue curve? What shape is the marginal cost curve? Average cost curve? 4/18/2012 Econ 191ac -- Lecture 6 16

17 Microeconomics of the Live Performing Arts Firm (2) What shape is demand curve? What shape is marginal revenue curve? What shape is marginal cost curve? What shape is average cost curve? 4/18/2012 Econ 191ac -- Lecture 6 17

18 Microeconomics of the Live Performing Arts Firm (2) What shape is demand curve? Demand curve is downward sloping What shape is marginal revenue curve? What shape is marginal cost curve? What shape is average cost curve? 4/18/2012 Econ 191ac -- Lecture 6 18

19 Demand Curve Is Downward-Sloping price and cost per seat D Available seats over length of run 4/18/2012 Econ 191ac -- Lecture 6 19

20 Microeconomics of the Live Performing Arts Firm (2) What shape is demand curve? Demand curve is downward sloping What shape is marginal revenue curve? What shape is marginal cost curve? What shape is average cost curve? 4/18/2012 Econ 191ac -- Lecture 6 20

21 Microeconomics of the Live Performing Arts Firm (2) What shape is demand curve? Demand curve is downward sloping What shape is marginal revenue curve? Marginal revenue curve is downwardsloping What shape is marginal cost curve? What shape is average cost curve? 4/18/2012 Econ 191ac -- Lecture 6 21

22 Demand and Marginal Revenue Curves Are Downward-Sloping price and cost per seat MR D Available seats over length of run 4/18/2012 Econ 191ac -- Lecture 6 22

23 Microeconomics of the Live Performing Arts Firm (2) What shape is demand curve? Demand curve is downward sloping What shape is marginal revenue curve? Marginal revenue curve is downwardsloping What shape is marginal cost curve? What shape is average cost curve? 4/18/2012 Econ 191ac -- Lecture 6 23

24 Microeconomics of the Live Performing Arts Firm (2) What shape is demand curve? Demand curve is downward sloping What shape is marginal revenue curve? Marginal revenue curve is downwardsloping What shape is marginal cost curve? Marginal cost curve is almost flat What shape is average cost curve? 4/18/2012 Econ 191ac -- Lecture 6 24

25 Marginal Cost Curve Is Almost Flat price and cost per seat MR D MC Available seats over length of run 4/18/2012 Econ 191ac -- Lecture 6 25

26 Microeconomics of the Live Performing Arts Firm (2) What shape is demand curve? Demand curve is downward sloping What shape is marginal revenue curve? Marginal revenue curve is downwardsloping What shape is marginal cost curve? Marginal cost curve is flat What shape is average cost curve? 4/18/2012 Econ 191ac -- Lecture 6 26

27 Microeconomics of the Live Performing Arts Firm (2) What shape is demand curve? Demand curve is downward sloping What shape is marginal revenue curve? Marginal revenue curve is downwardsloping What shape is marginal cost curve? Marginal cost curve is flat What shape is average cost curve? Average cost curve is downward-sloping 4/18/2012 Econ 191ac -- Lecture 6 27

28 Average Cost Curve Is Downward-Sloping price and cost per seat MR D AC MC Available seats over length of run 4/18/2012 Econ 191ac -- Lecture 6 28

29 Summary: Demand and Marginal Revenue in the Live Performing Arts Demand Effective demand for seats at each ticket price As prices fall, consumers willing and able to buy more tickets (why willing?) Marginal revenue Increment to revenue from filling one more seat (selling one more ticket) In order to fill additional seat, need to lower price on that seat and all previous seats in that price class (Front Center Balcony, e.g.) 10/13/2010 Econ 191ac -- Lecture 6 29

30 Summary: Marginal and Average Cost in the Live Performing Arts Marginal cost is the increment to total cost from Filling one more seat (selling one more ticket) Giving one more performance Staging one more production Marginal costs determined by variable costs -- which vary with output measure Average cost Fixed costs plus variable costs (total costs) per output measure 10/13/2010 Econ 191ac -- Lecture 6 30

31 What Is the Marginal Cost Associated With selling another ticket to a given performance? adding a performance to an open-ended production run? adding a performance to a finite production run? adding a production to a seasonal program of productions? 10/13/2010 Econ 191ac -- Lecture 6 31

32 What Is the Marginal Cost Associated With selling another ticket to a given performance? ZERO adding a performance to an open-ended production run? adding a performance to a finite production run? adding a production to a seasonal program of productions? 4/22/ /13/2010 Econ 191ac -- Lecture 6 32

33 What Is the Marginal Cost Associated With selling another ticket to a given performance? ZERO adding a performance to an open-ended production run? adding a performance to a finite production run? adding a production to a seasonal program of productions? 10/13/2010 Econ 191ac -- Lecture 6 33

34 What Is the Marginal Cost Associated With selling another ticket to a given performance? ZERO adding a performance to an open-ended production run? CONSTANT adding a performance to a finite production run? adding a production to a seasonal program of productions? 10/13/2010 Econ 191ac -- Lecture 6 34

35 What Is the Marginal Cost Associated With selling another ticket to a given performance? ZERO adding a performance to an open-ended production run? CONSTANT adding a performance to a finite production run? adding a production to a seasonal program of productions? 10/13/2010 Econ 191ac -- Lecture 6 35

36 What Is the Marginal Cost Associated With selling another ticket to a given performance? ZERO adding a performance to an open-ended production run? CONSTANT adding a performance to a finite production run? INCREASING adding a production to a seasonal program of productions? 4/22/ /13/2010 Econ 191ac -- Lecture 6 36

37 What Is the Marginal Cost Associated With selling another ticket to a given performance? ZERO adding a performance to an open-ended production run? CONSTANT adding a performance to a finite production run? INCREASING adding a production to a seasonal program of productions? 4/22/ /13/2010 Econ 191ac -- Lecture 6 37

38 What Is the Marginal Cost Associated With selling another ticket to a given performance? ZERO adding a performance to an open-ended production run? CONSTANT adding a performance to a finite production run? INCREASING adding a production to a seasonal program of productions? INCREASING 4/22/ /13/2010 Econ 191ac -- Lecture 6 38

39 Reminder: What Are the Objectives of Arts-Producing Organizations? Commercial firms want to maximize profits, though they often care about quality as well Nonprofit firms want to maintain financial viability produce high quality art reach as many people as possible 4/16/2012 Econ 191ac -- Lecture 5 39

40 Case 1: Where Will the Commercial Theatre Produce? (1) price and cost per seat P 1 E ATC 1 P 2 H F AC G Q 1 MR Q 2 D MC Available seats over length of run 4/18/2012 Econ 191ac -- Lecture 6 40

41 Case 1: Where Will the Commercial Theatre Produce? (2) price and cost per seat P 1 E ATC 1 P 2 H F AC G Q 1 MR Q 2 D MC Available seats over length of run 4/18/2012 Econ 191ac -- Lecture 6 41

42 Case 1: Where Will the Nonprofit Theatre Produce? (1) price and cost per seat P 1 E ATC 1 P 2 H F AC G Q 1 MR Q 2 D MC Available seats over length of run 4/18/2012 Econ 191ac -- Lecture 6 42

43 Case 1: Where Will the Nonprofit Theatre Produce? (2) price and cost per seat P 1 E ATC 1 P 2 H F AC G Q 1 MR Q 2 D MC Available seats over length of run 4/18/2012 Econ 191ac -- Lecture 6 43

44 Case 2: Where Will the Commercial Theatre Produce? price and cost per seat ATC 1 P 1 E H AC Q 1 MR D MC Available seats over length of run 4/18/2012 Econ 191ac -- Lecture 6 44

45 Case 2: Where Will the Nonprofit Theatre Produce? price and cost per seat ATC 1 P 1 E H AC Q 1 MR D MC Available seats over length of run 4/18/2012 Econ 191ac -- Lecture 6 45

46 Subsidies Allow a Firm to Produce When Cost Is High, Demand Low price and cost per seat ATC 1 P 1 E H AC Q 1 MR D MC AC Available seats over length of run 4/18/2012 Econ 191ac -- Lecture 6 46

47 HOMEWORK PLEASE TO ME BY SUNDAY NIGHT, IF POSSIBLE 4/18/2012 Econ 191ac -- Lecture 6 47

48 Homework 6 for Monday 4/23 (Output & Pricing in the Performing Arts ) On a single graph, depict the demand, marginal revenue, marginal cost, and average cost curves for a theatre company that will make a positive profit if it produces at the profit-maximizing price and quantity. Assume that your company can put on the same production for as long as people are willing to pay to see it (no schedule constraints). 1. How will your costs change if you sell one more ticket to a performance that is not sold out? 2. How will your costs change if you add one more performance to the production run? 3. Label and identify the point corresponding to the profit-maximizing price and quantity. 4. Suppose your theatre company is a nonprofit. Label and identify the point corresponding to the price and quantity where you are likely to produce. 5. Is your nonprofit company covering its costs at this point? If not, what options are available to you? Describe one of those options in words and graphically. 10/13/2010 Econ 191ac -- Lecture 6 48

49 Class Project Homework 6 for Monday 4/23 (1) Drop one of your U.S. cities/metropolitan statistical areas Tell me why you chose that one to drop. (2) For each of the 4 remaining cities, report Number of art museums Number and tax status of cultural festivals (you define) Number of dance studios Number of book stores This is not data you can get from the Economic Census! Suggested sources: American Association of Museums ( Find a Museum ), City websites (cultural calendars, e.g.), Guidestar.org (info on nonprofits), manta.com (info on local businesses), Google with keywords I will put more instructions up on the class webpage. 10/13/2010 Econ 191ac -- Lecture 6 49