Demand Exercise

# Demand Exercise - Demand and Elasticity Part 1 Section(2pm...

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Demand and Elasticity - Part 1 Section (2pm or 3:30pm): Please name your file using the following guide "Demand_exercise_2pm_group1.xls" Members of Group (alphabetical by last name): Clark Goit INSTRUCTIONS Listed below is actual data from a survey of a class of 59 BYU students. The survey asked how many times each student would attend a dollar theater to watch a movie in a month at the given prices of admission (see column headings). Thus, the table is a listing of individual demand curves for dollar movies. Assume that these 59 students are representative of a market of approximately 30,000 moviegoers. Further assume that you are constructing the demand curve for the new University Mall dollar movie theater and that this theater has 20 percent market share (independent of price). (Hint: See "Background Info - Demand") 3. Using the demand formula you calculated in #1, forecast how many tickets will the theater sell in a month at a price of (a) \$2? (b) \$1? (c) \$0? (Hint: make sure your formula is expressed with Q on the left side) 5. If the theater is charging a ticket price of \$1, would total ticket revenue increase or decrease with an increase in the price? 6. Does this imply elastic or inelastic demand at a price of \$1? 7. Find the revenue maximizing point (the price where demand is unitary elastic using 3 ways: a. Use solver (I will show you how to do this in class). b. "Brute force." Make small (\$0.01) changes around the price found in 7a and see if elasticity = -1 (Hint: Round to 2 decimal places -- it may not be exactly -1 unless you carry price out to several decimal places). c. Use calculus to confirm the answer you got in 7a & 7b. (This is actually the easier way in this case.) 8. If you were running the theater and interested only in maximizing ticket revenue (ignore the effect on concession sales), what price would you charge for admission? ANSWERS 1. Create a demand schedule based on a population of 30,000. Then graph the demand curve for the University Mall dollar theaters. (Be sure to convert sample of 59 to population of 30,000) (Hint: See "Background Info - Demand") Student Po 30,000.00 Market Sha 20% Price Revenue \$ movie po 6,000.00 \$3.00 3,800 3,800 \$11,400.00 \$2.50 5,000 5,000 \$12,500.00 \$2.00 7,400 7,400 \$14,800.00 \$1.50 11,100 11,100 \$16,650.00 \$1.00 15,000 15,000 \$15,000.00 \$0.50 19,700 19,700 \$9,850.00 \$- 29,600 29,600 \$- Price Quantity Revenue 1.3167 \$12,033 \$15,844.16 1. Graph the demand curve for the University Mall dollar theaters. (Be sure to convert sample of 59 to population of 30,000) 2. Estimate the formula for the demand curve. 4. Compute demand elasticity for (a) \$2 (b) \$1 (c) \$0.50

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Demand Exercise - Demand and Elasticity Part 1 Section(2pm...

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