Lecture 6 Firms and Markets in the Performing Arts Nonprofits and - - PowerPoint PPT Presentation

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Lecture 6 Firms and Markets in the Performing Arts Nonprofits and - - PowerPoint PPT Presentation

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Lecture 6 Firms and Markets in the Performing Arts Nonprofits and For-Profits Professor Julia Lowell lowell@econ.ucsb.edu Spring 2012 4/ 18/ 2012 Econ 191ac -- Lecture 6 1 Outline: Lecture 6 Go over HW5 (due today) Key

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SLIDE 1

Lecture 6

Firms and Markets in the Performing Arts – Nonprofits and For-Profits

Professor Julia Lowell lowell@econ.ucsb.edu Spring 2012

4/ 18/ 2012 1 Econ 191ac -- Lecture 6

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SLIDE 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

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SLIDE 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

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SLIDE 4

Class Project Homework (HW4) for Monday 4/ 16 (1)

First step tow ard 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, www.census.gov (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

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SLIDE 5

(HW4) for Monday 4/ 16 – The Cities You Chose (1)

4/ 16/ 2012 Econ 191ac -- Lecture 5 5

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

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SLIDE 6

(HW4) for Monday 4/ 16 – The Cities You Chose (2)

4/ 16/ 2012 Econ 191ac -- Lecture 5 6

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

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SLIDE 7

(HW4) for Monday 4/ 16 – The Cities You Chose (3)

4/ 16/ 2012 Econ 191ac -- Lecture 5 7 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

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SLIDE 8

(HW4) for Monday 4/ 16 – The Cities You Chose (4)

4/ 16/ 2012 Econ 191ac -- Lecture 5 8

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

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SLIDE 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

I f the data don’t exist at the city level, try the m etro level. I f not at the m etro level, just report that data w eren’t found. Source: U.S. Census Bureau, Economic Survey 2007, Industry Surveys by Geographic Area

4/ 16/ 2012 Econ 191ac -- Lecture 5 9

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SLIDE 10

FROM LECTURE 5 COSTS OF LI VE PERFORMI NG ARTS FI RMS

4/ 18/ 2012 Econ 191ac -- Lecture 6 10

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SLIDE 11
  • Provide a public benefit
  • Encourage citizens to become engaged
  • Provide high quality product or service
  • Can’t operate without subsidy

Consum ers’ total w illingness to pay doesn’t cover fixed costs

Why Do Nonprofits Get So Many Tax Breaks?

4/ 18/ 2012 Econ 191ac -- Lecture 6 11

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SLIDE 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

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SLIDE 13

Fixed vs Variable Costs of Staging a Musical or an Opera (2)

4/ 18/ 2012 Econ 191ac -- Lecture 6 13

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
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SLIDE 14

Fixed vs Variable Costs of Staging a Play or an Opera

4/ 18/ 2012 Econ 191ac -- Lecture 6 14

  • 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.

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SLIDE 15

MI CROECONOMI CS OF FI RMS ( ORGANI ZATI ONS) I N THE LI VE PERFORMI NG ARTS

4/ 18/ 2012 Econ 191ac -- Lecture 6 15

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SLIDE 16

Microeconomics of the Live Performing Arts Firm (1)

4/ 18/ 2012 Econ 191ac -- Lecture 6 16

Let

  • Unit revenue be measured by price/ ticket
  • Unit cost be associated with cost/ seat in
  • pen-ended run

Then

  • What shape is the demand curve?

Marginal revenue curve?

  • What shape is the marginal cost curve?

Average cost curve?

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SLIDE 17

Microeconomics of the Live Performing Arts Firm (2)

4/ 18/ 2012 Econ 191ac -- Lecture 6 17

  • What shape is demand curve?
  • What shape is marginal revenue curve?
  • What shape is marginal cost curve?
  • What shape is average cost curve?
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SLIDE 18

Microeconomics of the Live Performing Arts Firm (2)

4/ 18/ 2012 Econ 191ac -- Lecture 6 18

  • 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?
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SLIDE 19

Demand Curve Is Downward-Sloping

4/ 18/ 2012 Econ 191ac -- Lecture 6 19

D

price and cost per seat Available seats over length of run

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SLIDE 20

Microeconomics of the Live Performing Arts Firm (2)

4/ 18/ 2012 Econ 191ac -- Lecture 6 20

  • 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?
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SLIDE 21

Microeconomics of the Live Performing Arts Firm (2)

4/ 18/ 2012 Econ 191ac -- Lecture 6 21

  • What shape is demand curve?

– Demand curve is downward sloping

  • What shape is marginal revenue curve?

– Marginal revenue curve is downward- sloping

  • What shape is marginal cost curve?
  • What shape is average cost curve?
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SLIDE 22

Demand and Marginal Revenue Curves Are Downward-Sloping

4/ 18/ 2012 Econ 191ac -- Lecture 6 22

D

price and cost per seat Available seats over length of run

MR

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SLIDE 23

Microeconomics of the Live Performing Arts Firm (2)

4/ 18/ 2012 Econ 191ac -- Lecture 6 23

  • What shape is demand curve?

– Demand curve is downward sloping

  • What shape is marginal revenue curve?

– Marginal revenue curve is downward- sloping

  • What shape is marginal cost curve?
  • What shape is average cost curve?
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SLIDE 24

Microeconomics of the Live Performing Arts Firm (2)

4/ 18/ 2012 Econ 191ac -- Lecture 6 24

  • What shape is demand curve?

– Demand curve is downward sloping

  • What shape is marginal revenue curve?

– Marginal revenue curve is downward- sloping

  • What shape is marginal cost curve?

– Marginal cost curve is almost flat

  • What shape is average cost curve?
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SLIDE 25

Marginal Cost Curve Is Almost Flat

4/ 18/ 2012 Econ 191ac -- Lecture 6 25

D MC MR

price and cost per seat Available seats over length of run

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SLIDE 26

Microeconomics of the Live Performing Arts Firm (2)

4/ 18/ 2012 Econ 191ac -- Lecture 6 26

  • What shape is demand curve?

– Demand curve is downward sloping

  • What shape is marginal revenue curve?

– Marginal revenue curve is downward- sloping

  • What shape is marginal cost curve?

– Marginal cost curve is flat

  • What shape is average cost curve?
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SLIDE 27

Microeconomics of the Live Performing Arts Firm (2)

4/ 18/ 2012 Econ 191ac -- Lecture 6 27

  • What shape is demand curve?

– Demand curve is downward sloping

  • What shape is marginal revenue curve?

– Marginal revenue curve is downward- sloping

  • What shape is marginal cost curve?

– Marginal cost curve is flat

  • What shape is average cost curve?

– Average cost curve is downward-sloping

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SLIDE 28

Average Cost Curve Is Downward-Sloping

4/ 18/ 2012 Econ 191ac -- Lecture 6 28

D MC AC MR

price and cost per seat Available seats over length of run

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SLIDE 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

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SLIDE 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

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SLIDE 31

What Is the Marginal Cost Associated With…

Econ 191ac -- Lecture 6 31

  • 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
  • f productions?

31 Econ 191ac -- Lecture 6 10/ 13/ 2010

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SLIDE 32

What Is the Marginal Cost Associated With…

4/ 22/ 2009 Econ 191ac -- Lecture 6 32

  • 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
  • f productions?

10/ 13/ 2010 32 Econ 191ac -- Lecture 6

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SLIDE 33

What Is the Marginal Cost Associated With…

Econ 191ac -- Lecture 6 33

  • 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
  • f productions?

33 Econ 191ac -- Lecture 6 10/ 13/ 2010

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SLIDE 34

What Is the Marginal Cost Associated With…

Econ 191ac -- Lecture 6 34

  • 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
  • f productions?

34 Econ 191ac -- Lecture 6 10/ 13/ 2010

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SLIDE 35

What Is the Marginal Cost Associated With…

Econ 191ac -- Lecture 6 35

  • 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
  • f productions?

35 Econ 191ac -- Lecture 6 10/ 13/ 2010

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SLIDE 36

What Is the Marginal Cost Associated With…

4/ 22/ 2009 Econ 191ac -- Lecture 6 36

  • 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
  • f productions?

10/ 13/ 2010 36 Econ 191ac -- Lecture 6

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SLIDE 37

What Is the Marginal Cost Associated With…

4/ 22/ 2009 Econ 191ac -- Lecture 6 37

  • 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
  • f productions?

10/ 13/ 2010 37 Econ 191ac -- Lecture 6

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SLIDE 38

What Is the Marginal Cost Associated With…

4/ 22/ 2009 Econ 191ac -- Lecture 6 38

  • 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
  • f productions? INCREASING

10/ 13/ 2010 38 Econ 191ac -- Lecture 6

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SLIDE 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

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SLIDE 40

Case 1: Where Will the Commercial Theatre Produce? (1)

4/ 18/ 2012 Econ 191ac -- Lecture 6 40

D MC AC MR P1 ATC1 P2

price and cost per seat Available seats over length of run

Q2 Q1 E H G F

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SLIDE 41

Case 1: Where Will the Commercial Theatre Produce? (2)

4/ 18/ 2012 Econ 191ac -- Lecture 6 41

D MC AC MR P1 ATC1 P2

price and cost per seat Available seats over length of run

Q2 Q1 E H G F

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SLIDE 42

4/ 18/ 2012 Econ 191ac -- Lecture 6 42

D MC AC MR P1 ATC1 P2

price and cost per seat Available seats over length of run

Q2 Q1 E H G F

Case 1: Where Will the Nonprofit Theatre Produce? (1)

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SLIDE 43

Case 1: Where Will the Nonprofit Theatre Produce? (2)

4/ 18/ 2012 Econ 191ac -- Lecture 6 43

D MC AC MR P1 ATC1 P2

price and cost per seat Available seats over length of run

Q2 Q1 E H G F

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SLIDE 44

Case 2: Where Will the Commercial Theatre Produce?

4/ 18/ 2012 Econ 191ac -- Lecture 6 44

D MC AC MR P1 ATC1

price and cost per seat Available seats over length of run

Q1 E H

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SLIDE 45

Case 2: Where Will the Nonprofit Theatre Produce?

4/ 18/ 2012 Econ 191ac -- Lecture 6 45

D MC AC MR P1 ATC1

price and cost per seat Available seats over length of run

Q1 E H

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SLIDE 46

4/ 18/ 2012 Econ 191ac -- Lecture 6 46

D MC AC MR P1 ATC1

price and cost per seat Available seats over length of run

Q1 E H

Subsidies Allow a Firm to Produce When Cost Is High, Demand Low

AC’

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SLIDE 47

HOMEW ORK – PLEASE E-MAI L TO ME BY SUNDAY NI GHT, I F POSSI BLE

4/ 18/ 2012 Econ 191ac -- Lecture 6 47

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SLIDE 48

Homework 6 for Monday 4/ 23 (Output & Pricing in the Performing Arts )

10/ 13/ 2010 Econ 191ac -- Lecture 6 48

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.

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SLIDE 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