A movie theater company obtains the following estimated elasticities of demand. The absolute value of the short-run price elasticity of demand for movie tickets is 0.85
A movie theater company obtains the following estimated elasticities of
- The absolute value of the short-run
price elasticity of demand for movie tickets is 0.85. - The absolute value of the long-run price elasticity of demand for movie tickets is 3.2.
- The cross-price elasticity of demand for good X, another product sold by the theater, with respect to the price of movie tickets is – 0.26.
- The income elasticity of demand for movie tickets is 0.75.
Answer each of the following by referring to the given elasticities.
(a) If the theater raises movie ticket prices by 10 percent, by what percentage and in what direction will the quantity demanded for movie tickets change in the short run?
(b) Explain why the short-run price elasticity of demand for movie tickets differs from the long-run price elasticity of demand for movie tickets.
(c) What will happen to total revenue from movie ticket sales in the long run if movie ticket prices increase? Explain using the relative percentage changes in price and quantity.
(d) Are movie tickets a normal good or an inferior good? Explain.
(e) Given the increase in the price of movie tickets in part (a), what would be the impact on the demand for good X? Use the appropriate graph for good X to illustrate your answer.
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