Question

Assume that the price elasticity of demand for movie theatres is -.85 during the evening shows but for afternoon shows the price elasticity of demand is -2.28. For the theatre to maximize total revenue it shouldA.‍ charge the same price for both shows, holding all else constantB.‍ charge a higher price for the afternoon shows and a lower price for the evening shows, holding all else constantC.‍ charge a lower price for the afternoon shows and a higher price for evening shows, holding all else constantD.‍ there is not enough information to determine a pricing strategy

Answer 1

Answer:

The correct answer is option B.

Explanation:

A price elasticity of demand is always negative for normal goods. It indicates that the price increase causes demand to fall.

The price elasticity less than 1 means demand is less elastic or inelastic. In other words, a change in price will lead to a smaller change in demand.

Similarly, a price elasticity greater than 1 means demand is highly elastic. So a change in price will lead to a greater change in demand.

Since, afternoon shows have less elastic or inelastic demand, the theatre should charge higher price for them.

While, the evening shows are highly elastic so the theatre should charge lower price.

In this way theatre can maximize total revenue.