Question

You are Marketing Manager for Regal Entertainment, the largest movie-chain company in the United States. You know that the number of movie tickets sold annually by Regal (“quantity demanded”) depends on the price that Regal charges (dollars per ticket) and on the average income of movie-goers (dollars per year). Your staff presents you with the following portion of the demand schedule, given this-year’s income.

Price (dollars per ticket)	Quantity Demanded (millions of tickets per year)
22	12
18	20

3. (a) Compute total revenue when price is $22 and total revenue when price is $18. Show your computations.

    (b) How does the value of elasticity explain which is greater? Discuss thoroughly.

4. (a) Define INCOME ELASTICITY of demand for movie tickets.

    (b) Your staff forecasts that the income of the typical household will increase by six percent next year and that the income elasticity of demand for movie tickets is two. By how much will quantity demanded increase as a consequence? Show your computation.

5. (a) Define CROSS ELASTICITY OF DEMAND for popcorn with respect to the price of movie tickets.

    (b) Is it advantageous or disadvantageous for popcorn producers if Regal reduces the price of movie tickets? Explain your answer thoroughly.

Answer 1

(3)

(a)

Total revenue (TR) = Price x Quantity

When Price = $22, TR = $22 x 12 million = $264 million

When Price = $18, TR = $18 x 20 million = $360 million

(b)

When price has decreased from $22 to $18, total revenue has increased. It means that percentage increase in quantity demanded is higher than the percentage change in price, indicating that demand is elastic, and absolute value of price elasticity of demand is higher than 1.

NOTE: As HOMEWORKLIB Answering Policy, 1st multi-part question has been answered.