Question

You own a small town movie theatre. You currently charge $5 per ticket for everyone who...

You own a small town movie theatre. You currently charge $5 per ticket for everyone who comes to your movies. Your friend who took an economics course in college tells you that there may be a way to increase your total revenue by increasing the price. Is this necessarily a good idea? What is/explain/describe the relationship between revenue and elasticity?

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Answer #1

This is the Case For Price Elasticity Demand

Definition For Price Elasticity of Demand :- % change in price will lead to % change in the quentity Demand

Formula For Price Elasticity of Demand = % in price / % in Demand

Now Applied this in your Case for Movie charge is $5 Assume you increase price for movie is $7 and demand is decrease from 100 customer to 80 customer for the Movie so its a inverse relationship is happen

Put value in formula = $2 ( $7-$5) / 20 Customer ( 100 - 80 )  

= 0.1

If Price Elasticity of demand is greater then 1 than its Elastic , means a small change in price will lead to decrease in Demand Instantly.

If Price Elasticity of demand is less  then 1 than its InElastic , means a small change in price will not significantly impact on demand.

DECISION ON CASE :- For increase demand for movie customer you should not increase in price for Movie.

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