Question

Suppose you are the manager of a theatre. You currently charge the same admission price to all customers, regardless of age. You hire an economist to determine the price elasticity of demand for admission by age, and he tells you that at the current admission price, demand by adults is inelastic and demand by children is elastic. If you want to increase your total revenue by adjusting admission prices, how should they be adjusted?

Answer 1

In order to increase the revenue, two steps can be taken-

Firstly, since the demand by adults is inelastic, by increasing the admission fees of the adults, the revenue collected can be increased. Increasing the fees might lose some valuable customers and the demand might decrease but it will be substantially less as the demand is fairly inelastic in nature.
Secondly, decreasing the fees of children will make it more attractive and lure more customers in that age group since their demand is elastic in nature. And hence this increase in demand will in turn increase the revenue collected.

answered by: anonymous