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Chapter 19: Q. b - For Critical Thinking (page 419)

Would the estimated price elasticity of demand for movie tickets have been different if we had not used the average-values formula?? How?

Short Answer

Expert verified

Expected tickets sold rises to 300

Step by step solution

01

Given information

The given information are :

Estimate that the price elasticity of demand for tickets

02

Explanation 

A cinema charges £8 per ticket for evening screenings and sells an average of 250 tickets per night. They calculate the price elasticity of demand for tickets to be (-) 1.6.

Calculate the expected number of tickets sold if the ticket price is reduced to £7.

Answer:

Ped = % change in quantity demanded / % change in price

Price change percentage = 12.5 percent

If Ped = (-) 1.6, ticket sales will increase by 1.6 x 12.5 percent = 20%.

20% of 250 equals 50 additional tickets.

The expected number of tickets sold has risen to 300.

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Most popular questions from this chapter

The value of cross price elasticity of demand between goods Xand Yis 1.25, while the cross price elasticity of demand between goods Xand Zis -2.0. Characterize Xand Yand Xand Zas substitutes or complements.

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Suppose that over a range of prices, the price elasticity of demand varies from 15.0 to 2.5. Over another range of prices, the price elasticity of demand varies from 1.5 to 0.75. What can you say about total revenues and the total revenue curve over these two ranges of the demand curve as price falls?
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