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A theater on Broadway recently increased the price of a ticket for a popular play by 8%
A theater on Broadway recently increased the price of a ticket for a popular play by 8%.
The attendance went down by 3%. What is the price elasticity of demand for tickets for
this play? (2 points) What factors, besides the increase in the price of the ticket, could
have contributed to the reduction in attendance? (3 points) Should the theater further
increase or instead decrease the price of the ticket? What would be the optimal price of
a ticket?
Expert Solution
a.)
Price elasticity of demand= % change in demand or sales/ % change in price
= -3%/ 8%
= -0.375 (inelastic demand)
b.)
Factors, that have contributed to the reduction in attendance;
- Difference in consumer choices.
- Other new play might have been released and it snatched customer attention.
- Income level of consumers in that economy might ave been fallen.
c.)
Theater owner can increase the price because of demand is inelastic. Also because of demand is inelastic, increase in price leads to increase in total revenue.
d.)
Optimal price of a ticket is when elasticity is 1 or when P= MC
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