"$100 a Ticket?! Here's Why"
by Jesse McKinley

Source: The New York Times, April 8, 1999.
http://select.nytimes.com/search/restricted/article?res=F30B11FA3C5C0C7B8CDDAD0894D1494D81

             The cost curves you studied in Chapter 20 group the kinds of costs businesses incur into two broad categories: fixed costs and variable costs. These general categories are useful for developing models of how prices get set. In the real world, a business' costs cover all kinds of inputs used to produce particular goods and services.

             This New York Times article on the cost of producing a Broadway show with a limited run provides a great example. For this production of "The Iceman Cometh" in 2000, the producers' costs ran the gamut from cigars that the actors smoke on stage to the actors' salaries, to advertising the show. The article even starts with a what sounds like a light bulb joke: it takes three people to screw in a light bulb high above the sloped Broadway stage, technicians who earn $43.36 per hour. The producers even had to pay someone to make the costumes look authentically dirty!

             Notice that the producer who chose to open the books implicitly relies on the fixed-versus-variable cost distinction. The "initial capitalization to mount the show" would be the fixed cost. For this production, it was $1.5 million. The variable costs were $250,000 for each week that the show ran. In the theater, these are called "running costs." The producers carefully estimated all these costs—roughly $5 million—before deciding to import the show from London. Setting ticket prices at $100 for orchestra seats (and some cheaper tickets at $75 and $20), they estimated they could bring in $6.5 million in total revenue, for an accounting profit of $1.5 million.

• Read through the article and make a list of all of the specific costs that are named. Decide which of these are part of the fixed costs for opening the show and which are variable costs.
• Based on their variable costs, what is the shut-down point for this show? That is, how much money do they have to earn each week in order to keep the production open? Assuming a constant ticket price of $100 per seat, how many tickets would they have to sell each week?

"Shaving With Five Blades When Maybe Two Will Do"
by Nick Burns

Source: The New York Times, January 19, 2006.
http://select.nytimes.com/search/restricted/article?res=F60913FA3E5B0C7A8DDDA80894DE404482

             The box on page 479 of your text introduces "The Concept of Margin," one of the key tools of microeconomic theory. "Marginal" means "additional." When microeconomists compare costs and benefits, they frequently focus on the marginal costs and marginal benefits of a particular economic choice or action. This article on the introduction of a men's five-blade razor allows us to look at a fun example of marginal costs and benefits.

             Gilette is introducing the new five-blade razor, which will add one additional blade to the previous leader, the Schick Quattro. The question facing consumers involves marginal analysis: is there enough benefit from the additional blade to justify the additional cost of the new razor?

• What is the marginal cost of the fifth blade, that is, of the Fusion, compared with the Quattro? What is the marginal cost of the fourth blade, that is, of the Quattro, compared with the Mach 3? (Hint: the article compares the Fusion to the Mach 3, so you will have to do some subtraction.)
• Can you think of an example of a decision you made "at the margin?"
• Razors and their refill cartridges are complementary goods. Sometimes retailers will sell the initial razor for relatively inexpensive price. Based on what you remember from Chapter 17, why might this be an effective strategy for selling the refill cartridges?