S.
Klepper, Economics
73-100, Fall 2008
Consider a movie theatre that is currently charging $10 per person and is just selling out (i.e., the total quantity demanded at $10 just equals the total number of seats in the movie theatre).
Which
of the following statements concerning this situation are correct? Mark true for a correct answer and false for
an incorrect one and provide explanations for each of your answers.
_____1. The theatre would decrease its revenues by lowering its price.
_____2. The theatre would increase its revenues by raising its price.
_____3. The fact that the movie theatre is just selling out implies that at a price of $10 the price elasticity of demand equals one.
_____4. If the price elasticity of demand for movies were less than one, the movie theatre would increase its total revenues by increasing its price (by a small amount).
_____5. If the price
elasticity of demand for movies were greater than one, the movie theatre would
increase its revenues by lowering its price (by a small amount).