Question

Ouestion 3-(Chapter 5)-Elasticity: You own a small town movie theatre. You currently charge $5 per ticket for everyone who comes to your movies. Your friend who took an economics course in college tells you that there may be a way to increase your total revenue. Given the demand curves shown, answer the following questions. Price 10 10 530152025303540453055 6520 a. What is your current total revenue for both groups? b. The elasticity of demand is more elastic in which market? c. Which market has the more inelastic demand? d. What is the elasticity of demand between the prices of $5 and $2 in the adult market? Is this elastic or inelastic? What is the elasticity of demand between $5 and $2 in the children's market? Is this elastic or inelastic? e. f. Given the graphs and what your friend knows about economics, he recommends you increase the price of adult tickets to $8 each and lower the price of a child's ticket to $3. How much could vou increase total revenue if you take his advice?

Answer 1

a) At P = 5, Adult�s quantity = 50 & Child�s quantity = 20 Total revenue from adults = 5 (50) = 250 Total revenue from children = 5 (20) = 100 b) Flatter demand curve implies elastic demand The electricity of demand is more elastic in child�s market. c) Adult�s market is more inelastic as its demand curve is steeper. d) P_1 = 5, Q_1 = 50 P_2 = 2, Q_2 = 60 Elasticity = Q_2 - Q_1/Q_2 + Q_1/P_2 - P_1/P_1 + P_2 = 60 - 50/60 + 50/2 - 5/2 + 5 = -10/110/3/7 = -0.21 Since Vertical-bar e_d Vertical-bar < 1 - demand is inelastic. e) child�s market P_1 = 5, Q_1 = 20 P_2 = 2, Q_2 = 50 Elasticity = 50 - 20/50 + 20/2 - 5/2 + 5 = -30/70/3/7 = -1 Since Vertical-bar e_d Vertical-bar = 1, demand is unitary elastic. \r\n f) with P = 8, Adult�s quantity = 40 Total revenue = 8 (400 = 320