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nakungth nakungth
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6 years ago
The current price charged by a local movie theater is $8 per ticket.  The concession stand at the theater averages $5 in revenue for each ticket sold.  At the current ticket price, the theater typically sells 300 tickets per showing.  If the theater raises ticket prices to $9, the theater will sell 270 tickets.  What is the price elasticity of demand at $8?  What happens to ticket revenue if the theater increases ticket prices to $9 from $8?  What happens to concession revenue if the theater increases ticket prices?  If the theater wants to maximize the sum of ticket and concession revenue, should they raise ticket prices to $9?
Textbook 
Microeconomics

Microeconomics


Edition: 8th
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Replies
wrote...
#1
6 years ago
The price elasticity of demand at $8 is E = ( ) ( ) = ( ) ( ) = -0.8. Initially, ticket revenue is PQ = $8(300) = $2,400.  If ticket prices are raised to $9, ticket revenue becomes
PQ = $9(270) = $2,430.  Thus, if ticket prices are raised to $9, ticket revenue increases by $30.  At $8, the concession stand will average $1,500 per movie showing.  If ticket prices are raised to $9, the concession stand will average $1,350.  Thus, concession stand revenues will fall on average by $150.  If the theater wants to maximize the sum of ticket and concession revenue, they should not raise ticket prices to $9.
nakungth Author
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#2
5 years ago
A+ answer, ty
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