S. Klepper, Economics 73-100, Fall 2011

# Solution to Mini-test 3

If the theatre company lowered its price, the quantity demanded would have risen, contributing to more people wanting to attend the theatre.  However, if the theatre company was selling out at a price of \$35, it could not have accommodated any additional viewers.  Therefore, if it lowered its price then the number of people attending the theatre would have been the same but it would have taken in less revenue from each person, causing its total revenues to decline.  This would be true regardless of the price elasticity of demand for plays.  Alternatively, if it increased its price then the number of people attending the theatre would have declined.  If the price elasticity of demand were less than one and the price increase was small, the percentage decrease in attendance would have been outweighed by the percentage increase in price and the theatre would have increased its revenues.  The fact that the theatre was sold out at \$35 per ticket 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