Question

Suppose a movie theater determines that the elasticity of demand for movie tickets is​ -2.0 for...

Suppose a movie theater determines that the elasticity of demand for movie tickets is​ -2.0 for senior citizens and​ –1.5 for adults under age 65. Use the Lerner index to determine the ratio of prices between adults and seniors. In percentage​ terms, how big a price premium should be charged to the group that pays the higher​ price?

A. The movie theater should charge adults 1.33 times the amount​ (33% more) they charge to seniors. 

  B. The movie theater should charge adults 1.5 times the amount​ (50% more) they charge to seniors.  

C. The movie theater should charge seniors 2 times the amount​ (200% more) they charge to adults.

D. The movie theater should charge adults 3 times the amount​ (300% more) they charge to seniors.

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Option A is the correct answer.

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