Question

3.What does this line suggest about the relationship between total revenue from admissions at

the Metropolitan Museum of Art and admission fees. Explain suing your understanding of the

relationship between total revenue and price elasticity of demand. Support your answer with a

graph if possible.

They can probably charge much more and not lose a customer.”

Many museums find themselves having to choose between public policy considerations,

which would promote access and thereby lower or eliminate admission fees, and economic

priorities, which would compel institutions to maximize revenues from all available sources,

such as admission fees. Most, however, try to find a balance between the two, usually

through what is called variable pricing. For instance, the Art Institute in Chicago has a range

of discounted admissions that aim to expand the opportunity, such as for adults who are

Illinois residents ($20) or who live in Chicago ($18), for seniors and students ($17), for

students who are residents of Illinois ($14) and students who are residents of Chicago ($12),

Answer 1

3. The line suggests that the price elasticity of demand for the museum is less (ie. inelastic), and hence, increasing price would only increase the total revenues of the museum.

The price elasticity of demand is the percentage change in quantity demanded due to a unit percentage change in price. If demadns responds less than price, it would mean that increase in price would overcome the decrease in demand and that would actually increase the total revenue.

As can be seen, the TR is the area of rectangle covered by price and quantity, and the demand curve is inelatic. For an increase in price from P3 to P2, the quantity is reduced only by Q3 to Q2, and as can be seen, the revenues : . Hence, revenue increases if price is increased in case of inelastic demand.