The price elasticity of demand is used to determine how the price of the movie ticket changes with demand
- The price range of $9 to $10 is inelastic and the total revenue would fall
- The price range of $10 to $15 is inelastic and the total revenue would fall
How to determine the price elasticity of demand
The price elasticity (E) of demand is calculated using:
[tex]E = \frac{(Q_f -Q_i)/(Q_f +Q_i)}{(P_f -P_i)/(P_f +P_i)}[/tex]
The question is incomplete, as the change in the quantity demanded is not given.
Assume the change is from 125 to 130 for the price range of $9 to $10.
The equation becomes
[tex]E = \frac{(130 -125)/(130 +125)}{(10 -9)/(10 +9)}[/tex]
[tex]E = \frac{(5)/(255)}{(1)/(19)}[/tex]
Evaluate
[tex]E = 0.37[/tex]
The price elasticity of demand is less than 1.
Hence, the range is inelastic and the total revenue would fall
Using the same range for price range of $10 to $15, we have:
[tex]E = \frac{(130 -125)/(130 +125)}{(15 -10)/(15 +10)}[/tex]
[tex]E = \frac{(5)/(255)}{(5)/(25)}[/tex]
[tex]E = 0.09[/tex]
The price elasticity of demand is less than 1.
Hence, the range is inelastic and the total revenue would fall
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