Question

3) In a given season, the Chicago Bears charge $50 for the cheapest seats and 150,000...

3) In a given season, the Chicago Bears charge $50 for the cheapest seats and 150,000 of these tickets sell. The Bears increase the price to $75 the next season and sell 100,000 tickets.

(a) For the cheapest seats at Bears games, calculate the elasticity of demand.

(b) Is the price increase a good idea (assume the marginal cost of admitting one more fan is zero)

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Answer #1

ANSWER -

ELASTICITY OF DEMAND = % CHYANGE IN QUANTITY DEMANDED / % CHANGE IN PRICE

% CHANGE IN QUANTITY DEMANDED = (-50000)/150000 *100

= -33.33%

% CHANGE IN PRICE = 25 / 50*100

=50%

Ed = -33.33/50

= 0.67

HENCE THE DEMAND IS INELASTIC IN NATURE

2 - SINCE THE DEMAND IF INELASTIC IN NATURE , THIS WILL MEAN THAT THE DEMAND WILL CHANGE LESS THAN THE CHANGE IN PRICE. . SO IF THE PRICE WILL BE INCREASED, DEMAND WILL DECREASE LESS IN QUANTITY . THIS WILL LEAD TO RISE IN TOTAL REVENUE. SO YES PRICE RISE CAN BE A GOOD IDEA.

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