S.
Klepper, Economics
73-100, Fall 2008
If
the theatre lowered its price, the quantity demanded would rise, contributing
to more people wanting to attend the theatre.
However, if the movie theatre were selling out at a price of $10, it
could not accommodate any additional viewers.
Therefore, if it lowered its price then the number of people attending
the theatre would be the same but it would take in less revenue from each
person, causing its total revenues to decline.
This would be true regardless of the price elasticity of demand for
movies. Alternatively, if it increased
its price then the number of people attending the theatre would decline. If the price elasticity of demand were less
than one and the price increase was small, the percentage decrease in
attendance would be outweighed by the percentage increase in price and the
theatre would increase its revenues. The
fact that the movie theatre is selling out at $10 indicates nothing about the
price elasticity of demand, which calibrates the percentage change in the
quantity demanded per percentage change in price.
Based
on this description, the answers to the individual questions are:
_____1.
True
_____2. False—it depends on the price elasticity of demand.
_____3.
False
_____4. True
_____5. False