The movie theater recognizes that the demand for tickets to its matinee movies is relatively inelastic

Economics Jan 19, 2021

The movie theater recognizes that the demand for tickets to its matinee movies is relatively inelastic. To increase its revenues it should

a. reduce the price of popcorn and raise the price of soda-pop.

b. lower the ticket price.

c. increase the price of popcorn.

d. it can't increase sales and should simply stop showing the matinees.

e. raise the ticket price.

Expert Solution

Answer: E

If demand for tickets in inelastic, raising the price of tickets will raise revenue. This is because an inelastic demand means that the % change in quantity demanded will be less than the % change in price. Since revenue is price multiplied by quantity, a larger increase in % of price than a decrease in % of quantity will cause revenue to rise. Thus, raising ticket prices will increase revenue.

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