Question

A local movie theater has a 219-seat capacity and charges a $11 per ticket. The tickets are always sold out. The manager is planning to raise the price by 30% and she feels that a higher price will generate more revenue. The elasticity of demand is given as 0.6 (assume downward sloping demand curve). What is the revenue generated after the 30% price increase?

Answer 1

The revenue generated after a 30% price increase can be calculated by finding the new quantity of tickets sold and multiplying it by the new price. The new quantity of tickets sold can be determined using the price elasticity of demand and the percentage change in price. In this case, the revenue generated after the 30% price increase is $3,686.40.

Step-by-step explanation:

The revenue generated after the 30% price increase can be calculated by multiplying the new price by the new quantity of tickets sold. To find the new quantity of tickets sold, we need to determine the percentage change in quantity demanded. The formula for percentage change in quantity demanded is:

Percentage change in quantity demanded = (Elasticity of demand) * (Percentage change in price)

In this case, the elasticity of demand is 0.6 and the percentage change in price is 30%. Therefore, the percentage change in quantity demanded is 0.6 * 30% = 18%.

The new quantity of tickets sold will be 100% + 18% = 118% of the original quantity. So the new quantity of tickets sold is 118% * 219 seats = 258 seats.

The new price is $11 + 30% = $14.30.

The revenue generated after the price increase is $14.30 * 258 seats = $3,686.40.