Not My Favorite Scene

My Favorite Year (1982) was recently on TCM. More and more they're showing "modern" stuff. The film was well-reviewed, but, outside Peter O'Toole's performance, it doesn't do much for me.

Still, I watched the ending just to see if it made as little sense as I remembered. The plot, set in the 1950s, is about preparing the hard-drinking, washed-up movie star Alan Swann for his appearance on a variety show. In the climax, a subplot explodes and the star of the show, King Kaiser, is attacked by thugs sent by a crook he's been parodying. The show starts (it's live TV) and instead of seeing the opening sketch, the audience is treated to Swann and Kaiser fighting these guys.

The movie would have us believe the audience figures it's part of the show, and finds it delightful. Except all they're seeing is mayhem. Why are they laughing and applauding? They should either be bewildered or horrified.