Question

A local theme park has estimated that in order to increase revenues generated from ticket sales it must reduce ticket prices. It follows that the theme park has estimated the demand for visits to the park to be:

Answer 1

The theme park believes that the demand for its tickets is price elastic, meaning that lowering ticket prices should lead to an increase in revenue due to a larger percentage increase in the quantity sold.

Step-by-step explanation:

The local theme park has estimated that its demand for visits is price elastic. This concept is crucial for understanding how to maximize total revenue, which is the product of the price and the quantity of tickets sold. If demand is elastic at a certain price level, reducing the ticket price will result in a larger percentage increase in the quantity sold, thereby increasing total revenue. On the other hand, if demand is inelastic, raising the ticket price will cause a smaller percentage decrease in the quantity sold, which also increases total revenue. When demand has unitary elasticity, the percentage change in quantity sold will offset a change in price, meaning total revenue remains the same whether prices are moderately increased or decreased.