If The Price Elasticity Of Demand
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If the price elasticity of demand for tickets to a dance performance
of the Alvin Ailey American Dance Theatre is -1.2 for any quantity
of tickets sold, what would happen to the number of tickets sold if
the price were lowered from $100 to $90, if the quantity demanded at
$100 is 500 tickets? (HINT: Round your answer to the nearest whole
number.) Compute the total revenues for each of the two prices.
What is the (approximate) marginal revenue of the additional tickets
sold at the lower price? If Alvin Ailey is deciding between the two
ticket prices based on expected profits, which should they choose?
Repeat this exercise for a price elasticity of demand of -0.25. Does
the decision of Alvin Ailey change? Explain.
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