You run a chain of movie theaters, so you commission a marketing study that categorizes your potential customers into 10 equal-sized groups according to what they're willing to pay for a movie, ($10,$9,$8,$7,$6,$5,$4,$3,$2,$1). It turns out that the low-value customer groups, those with values ($5,$4,$3,$2,$1), are all over 65 years old. All the costs of exhibiting movies are fixed except for the $3.50 royalty payment you must make to the film distributor for each ticket sold.
What price should you charge for movie tickets?
Should you offer senior citizen discounts? If so, how much?
Managerial Economics: A Problem Solving Approach
Authors: Luke M. Froeb and Brian T. McCann
- What price should you charge for movie tickets?
Let's unitize the size of customer groups, i.e., assume that there is ONE customer in each price group. Then the demand curve becomes: Q = 11 - P, or,
P = 11 - Q
Then the marginal revenue is:
MR = 11 - ...
Pricing determination is depicted.
Elasticity: Demand and Supply
1. Determine the price elasticity of demand at each quantity demanded using the formula: Percentage change in quantity demanded = (Q2-Q1)/Q1 divided by percentage change in price = (P2-P1)/P1
b. Redo exercise 1a using price changes of $10 rather than $5
c. Plot the price and quantity date given in the demand schedule. Indicate the price elasticity value at each quantity demanded. Explain why the elasticity value gets smaller as you move down the demand curve.
D. Plot the total revenue curve directly below the demand curve plotted. Measuring total revenue on the vertical axis and quantity on the horizontal axis.
E. What would a 10% increase in the price of movie tickets mean for the revenue of a movie theater if the price elasticity of demand was .1, .5, 1.0 and 5.0?
F. Using the demand curve plotted illustrate what would occur if the income elasticity of demand was .05 and income rose by 10%. If the income was elasticity was 3.0 and income rose by 10% what would occur?View Full Posting Details