Question

Assume that the price elasticity of demand for movie theatres is 20.85 during all evening shows but for all afternoon shows the price elasticity of demand is 22.28. For the theater to maximize total revenue, it should a. charge the same price for both shows, holding other things constant. b. charge a higher price for the afternoon shows and lower price for the evening shows, holding other things constant. c. charge a lower price for the afternoon shows and higher price for the evening shows, holding other things constant. d. Need more information.

Answer 1

Answer:

d. Need more information.

Explanation:

Demand elasticity is a microeconomic concept that aims to measure the sensitivity of demand in the face of price changes.

When calculated, elasticity reaches values that signal consumers' response to price. If elasticity is a value between 0 and 1, then demand is inelastic - little sensitive to price changes. If demand is greater than 1, this means elastic - very sensitive to price changes.

The numbers presented by the question show a highly elastic demand for theater ticket prices in both cases, especially in the afternoon shift. Thus, the theater could lower the price of both, because in elastic demands, a negative variation in price will increase the demand. However, this is not enough to calculate profit maximization since the profit calculation formula also involves costs, which are not described in the question.