The following two questions (# 4, # 5) refer to the following situation. Theater

Question

The following two questions (# 4, # 5) refer to the following situation. Theater owners in Toronto have discerned that the demand for theater tickets at currents prices for, Matilda has an elasticity coefficient of 0.96. 4. In order to increase the number of patrons, theater owners should A) raise the price and thus raise revenue B) raise the price and thus lower revenue C) lower the price and thus raise revenue D) lower the price and thus lower revenue 5. In order to increase revenues, they should A) raise their prices B) lower their prices C) lower their prices by at least 9.6 percent D) raise their prices by at least 9.6 percent 6. Marginal cost is the A) Total cost of an activity B) Additional benefit of a decrease in an activity C) Additional benefit of an increase in an activity D) Opportunity cost of a decrease in an activity E) Opportunity cost of an increase in an activity

Explanation / Answer

5. a) raise their prices

When demand for good is inelastic then firm can increase its TR by increasing price.

6. e) Opportunity cost of an increase in activity.

Opportunity cost is the value of next best alternative foregone.

37. TC = 200 x 16 = $ 3200

38. b) equal to AVC

This is because MC cuts AVC at its minimum so AVC and MC are equal.

52. D) minimum Average variable cost

This means firm is not able to cover all its variable cost. So, it is better for firm to shut down.

53. B) demand curve that is perfectly elastic

Demand curve of perfectly competitive firm or price taking firm is horizontal i.e. parallel to x-axis.

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