Your good friend owns a small town movie theatre. She currently charges $5 per t
ID: 1189722 • Letter: Y
Question
Your good friend owns a small town movie theatre. She currently charges $5 per ticket for everyone who comes to the movies. Given the demand curves shown, answer the following questions:
a. What is your current total revenue for both groups?
b. Just by looking at the graphs (no calculations) decide which market has more elastic demand than the other. How can you tell?
c. Given the graphs and what you know about economics, what do you recommend that your friend charge for an adult ticket and for a child ticket? How much could your friend increase total revenue if she takes your advice?
10.-price Price 10 price 4 Adult Demand Child Demand 10 20 30 40 50 60 70 80 90 100 uantity 5 10 15 20 25 30 35 40 45 50 55 60 65 70 QuantityExplanation / Answer
Answer a.
Total revenue from 'adult' market = ticket price * no. of adult viewers. According to the graph, at a ticket price of $5, there is an adult demand of 50. Therefore, total revenue = 5*50=$250
Similary, Total revenue from 'child' market = ticket price * no. of child viewers. According to the graph, at a ticket price of $5, there is a child demand of 20. Therefore, total revenue from child demad = 5*20=$100
Answer b.
The 'child' market is more elastic than the 'adult' market, because its demand curve is relatively flatter. The thumb rule is:- flatter the demand curve, higher the elasticity. (Conversely, steeper the demand, lower the elasticity).
Answer c
As discussed in answer b, we know that the adult demand is relatively inelastic compared to the child demand. Therefore, we should charge the highest price possible from the adult market and charge the lowest price possible from the 'child' market.
To ascertain the highest and lowest prices possible, we have created the following scenarios based on the 1) information provided in the graphs, and, 2) the total revenue calculated in 'answer a' above:
'Adult' Market:
'Child' Market
From the above tables, we can conclude that it is advisable to price an adult ticket at $8 and a child ticket at $3, as the resultant change in revenue is the maximum in these scenarios.
Particulars Scenario 1 Scenario 2 Scenario 3 Price 2 5 8 Demand 60 50 40 Total Revenue 2*60=120 5*50=250 8*40=320 Change in revenue 120-250=-130 250-250=0 320-250=70Related Questions
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