You Own a Small Town Movie Theatre

question 7

Essay

You own a small town movie theatre. You currently charge $5 per ticket for everyone who comes to your movies.
Your friend who took an economics course in college tells you that there may be a way to increase your total revenue. Given the demand curves shown, answer the following questions.
a. What is your current total revenue for both groups?
b. The elasticity of demand is more elastic in which market?
c. Which market has the more inelastic demand?
d. What is the elasticity of demand between the prices of $5 and $2 in the adult market? Is this elastic or inelastic?
e. What is the elasticity of demand between $5 and $2 in the children's market? Is this elastic or inelastic?
f. Given the graphs and what your friend knows about economics, he recommends you increase the price of adult tickets to $8 each and lower the price of a child's ticket to $3.
How much could you increase total revenue if you take his advice?

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Definitions:

Organization-Sustaining Activities

Activities that are carried out regardless of which customers are served, which products are produced, how many batches are run, or how many units are made.

First-Stage Allocations

The process of assigning overhead costs to different departments or cost pools as a first step in allocating costs to individual products or services.

ABC System

Refers to Activity-Based Costing System, a method of assigning costs to products or services based on the resources they consume.

Activity Cost Pools

Pools of indirect costs in accounting, classified according to the activities that drive those costs.