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QuadPlex Cinema is the only movie theater in Idaho Falls. The nearest rival movie theater, the Cedar Bluff Twin, is 35 miles away in Pocatello. Thus QuadPlex Cinema possesses a degree of market power. Despite having market power, QuadPlex Cinema is currently suffering losses. In a conversation with the owners of QuadPlex, the manager of the movie theater made the following suggestions: Since QuadPlex is a local monopoly, we should just increase ticket prices until we make enough profit.
a. Comment on this strategy. Will it work in short run?
b. Is the Lerner index an appropriate measure for the market power of QuadPlex Cinema? Please explain your answer briefly.
c. What options should QuadPlex consider in the long run?
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