bba 2501 micoreconmics
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UnitIII_AssignmentWorksheetOrvilleStewart.docxUnit III Assignment Worksheet
Background Information
The Ruby Red Movie Theater in town is in jeopardy of having to close its doors because it is unable to generate enough total revenue. In an effort to generate more total revenue, the movie theater manager decided to change the prices this month for drinks, popcorn, candy, hot dogs, and movie tickets.
The manager would like for you to analyze the data that has been collected to help decide if the decisions to change the prices were correct and, if not, what should be done to prices to generate more total revenue. Be sure to answer all of the questions in this worksheet.
Question 1
Information regarding the community’s average income and movie ticket sales at the Ruby Red Movie Theater for both last year and this year are presented below. Use this information when answering questions A–C, below.
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Last Year |
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This Year |
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Community’s Average Income |
$55,800 |
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$57,474 |
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Movie Ticket Sales |
4,980 |
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5,021 |
A. Calculate the Income Elasticity of Demand for movie tickets. (Show your work. You can type it in the box below, or write it out by hand, take a picture, and insert the picture in the box. Make sure it fits in the box. NOTE: These options apply to all “Show your work” responses.)
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Step 1: ($55,800+$57,474) (4980-5021) ____________________ x ________________ 2 (55,800-57,474) _____________________ (4980+5021) _____________________ 2
Step 2: $113,274 ___________________ 2 -41 __________________ x _______________ -1,674 10,001 ________ 2
Step 3: $56,637 -41 ______________ X ____________ 5,000.5 -1,674
Step 4: 11.32626737326267 x 0.02449223
=0.2774055455474453
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B. Are movie tickets considered to be inferior goods, normal goods, or unit (unitary) goods in this town? Explain why.
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Movie tickets are considered a normal good. When you look at the normal good, it sees an increase in its demand when the price changes. The income and elastically were in a positive light and average 0.27. Income elasticity results positive but less than 1%, indicating that movie tickets in town are considered normal goods.
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C. A new firm is relocating to the city and adding a large number of above average salaries. Will the number of movie ticket sales for the theater increase, decrease, or remain constant? Base your answer on information you answered in part B above.
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When looking at the movie tickets, it will increase in demand because they are a normal good. When an increase in income or salary occurs, then the demand for tickets will also increase. The fact is when households have more money to spend. Then they demand more in normal goods, for example, movie tickets. |
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Question 2
The manager at Ruby Red Movie Theater decided to change the prices of concession stand items as well as tickets this month in an effort to increase revenues. Below, you are provided with prices for last month and this month as well as the quantities demanded for both months. Use this information when answering questions A–H below.
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Price |
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Quantity Demanded |
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Item |
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Last Month |
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This Month |
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Last Month |
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This Month |
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Large Drink |
$6.00 |
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$5.50 |
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150 |
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161 |
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Large Popcorn |
$7.50 |
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$8.00 |
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125 |
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101 |
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Small Drink |
$2.50 |
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$2.00 |
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75 |
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80 |
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Small Popcorn |
$5.00 |
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$5.25 |
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45 |
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39 |
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Candy |
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$4.00 |
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$3.50 |
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57 |
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68 |
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Hot Dog |
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$5.00 |
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$5.25 |
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35 |
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36 |
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Movie Ticket |
$8.00 |
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$9.00 |
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428 |
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300 |
A. Calculate the total revenues earned by the theater last month and this month (Show your work.)
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Last Month: Large Drinks - $6.00 x 150=$900.00 Large Popcorn- $7.50 x 124=$937.50 Small Drink- $2.50 x 75= $187.50 Small Popcorn- $5.00 x 45 = $225.00 Candy - $4.00 x 57 = $228.00 Hot Dog - $5.00 x 35= $175.00 Movie Tickets - $ 8.00 x 428 = $3,424.00
This Month Large Drink - $5.50 x 161 = $885.50 Large Popcorn - $8.00 x 10 = $808.00 Small Drink - $2.00 x 80 = $160.00 Small Popcorn - $5.25 x 39 = $204.75 Candy $3.50 x 68 = $238.00 Hot Dog - $5.25 x 36 = $189.00 Movie Tickets - $9.00 x 300 = $2,700.00
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Total revenues last month = |
$6077 |
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Total revenues this month = |
$5185.25 |
B. Calculate the price elasticity of demand for large drinks. (Show your work.)
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Step 1
(550+6.00)/2 x (151-150) _________ _________ (161+150)/2 5.50-6.00
Step 2
6.00-5.50 x 0.5 __________ __________
Step 3 150+161 x 155.5 __________ ___________ 2 Step 4 161-150 x 11 _________ ____________
Step 5 0.03697749 x 22 = 0.81350478
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Is the price elasticity of demand for large drinks price elastic, inelastic, or unit (unitary)? Briefly explain why in the box below.
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Answer = |
The value is less than 1, this make the elasticity of demand inelastic
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C. Calculate the price elasticity of demand for large popcorn. (Show your work.)
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Step 1: ($7.50+$8.00)/2 x (125-101) _____________ __________ (125+101)/2 (7.50-8.00)
Step 2: 15.50/2 x 24 __________ ------------------ 226/2 -0-5
Step 3: 7.75/113 x 24/-05
Step 4: 0.0685840707964602 x -48 = - 3.29203539823009 |
Is the price elasticity of demand for large popcorn price elastic, inelastic, or unit (unitary)? Briefly explain why in the box below.
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Answer = |
The large popcorn price of demand is greater than 1. This results in a high response to the change in price. To understand this is that the price elasticity for large popcorn is elastic. Because there is a negative sign, this would indicate an increase of 1% and could decrease around 3.29%. Only if prices decrease by 1% the quantity demanded would increase.
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D. Calculate the price elasticity of demand for small drinks. (Show your work.)
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Step 1: (2.50+2.00)/2 x 75-80 _____________ _________ (75+80)/2 2.50-2.00
Step 2: 4.50/2 x -5 _________ ___________ 155/2 0.5
Step 3: 2.25/77.50 x -10
Step 4: 0.0290322580645161 x –10
=0.2903225806451613 |
Is the price elasticity of demand for small drinks price elastic, inelastic, or unit (unitary)? Briefly explain why in the box below.
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Answer = |
Because the small drink falls between 0 to 1, the demand price elasticity is inelastic
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E. Calculate the price elasticity of demand for small popcorn. (Show your work.)
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Step 1: (5+5.25)/2 x 45-39 __________ __________ (45+39)/2 5-5.25
Step 2: 10.25/2 x 6 _________ ___________ 84/2 -0.25
Step 3: 5.125 _________ x -24 42 Step 4: 0.1220238095238095 x –24
= 2.92857428571429
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Is the price elasticity of demand for small popcorn price elastic, inelastic, or unit (unitary)? Briefly explain why in the box below.
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Answer = |
The small popcorn price elasticity of demand at the theater is elastic as it is greater than 1.
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F. Calculate the price elasticity of demand for candy. (Show your work.)
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Step 1: (4 +3.50)/2 $7.68 _________ x _______ (57+68)/2 4-3.50
Step 2: 11.50/2 -11 X _________ _______ 125/2 0.5
Step 3: 5.75 X -22 ___________ 62.5
Step 4: 0.092 x -22
= -2.024 |
Is the price elasticity of demand for candy price elastic, inelastic, or unit (unitary)? Briefly explain why in the box below.
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Answer = |
The candy price elasticity of demand for the theater is elastic as it is greater than 1.
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G. Calculate the price elasticity of demand for hot dogs. (Show your work.)
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Step 1: (5+5.25)/2 35-36 __________ x ________ (35+36)/2 5-5.25
Step 2: 10.25/2 -1 ___________ x __________ 71/2 0.25
Step 3: 5.125 _________ x 4 35.5
Step 4: 0.1443661971830986 x 4
= 0.5774647887323944 |
Is the price elasticity of demand for hot dogs price elastic, inelastic, or unit (unitary)? Briefly explain why in the box below.
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Answer = |
The hot dog's price elasticity of demand for the theater is inelastic as less than 1.
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H. Calculate the price elasticity of demand for movie tickets. (Show your work.)
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Step 1: (8.00 +9.00)/2 428-300 ______________ x ___________ (428+300)/2 8.00-9.00
Step 2: 17/2 128 _____________ x ___________ 728/2 -1
Step 3:
8.5 ____________ x -128 364
Step 4: 0.0233516483516484 x –128
+ -2.989010989010989 |
Is the price elasticity of demand for movie tickets price elastic, inelastic, or unit (unitary)? Briefly explain why in the box below.
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Answer = |
The movie tickets price elasticity of demand for the theater is elastic as it is greater than 1
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Question 3
Based on the relationship between price elasticity of demand and total revenues, evaluate whether the individual price changes the manager made were correct or not. Remember, Ruby Red Movie Theater wants to increase total revenue.
A. Was the decision to decrease the price of large drinks appropriate to increase total revenues? Why, or why not? Briefly explain in the box below.
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Answer = |
No. By decreasing the price for the large drink leads to a loss to revenue. Because the price elasticity demand fall below 1. And if you looked at the revenue last month was $900 and this month was $885.90.
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B. Was the decision to increase the price of large popcorn appropriate to increase total revenues? Why, or why not? Briefly explain in the box below.
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Answer = |
No. the price elasticity of demand stands at 3.29. Because of this, it makes its demand elastic. If the theater increase in price, this would cause a loss in revenue. Looking at last month's revenue and this month's revenue, the differences are $937.50 and $808.00.
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C. Was the decision to decrease the price of small drinks appropriate to increase total revenues? Why, or why not? Briefly explain in the box below.
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Answer = |
Because there were no decreases in price, resulting in the business losing revenue. Also, the PED was below 1% at 0.29. As a result, the total business revenue went from $187.50 to $160.
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D. Was the decision to increase the price of small popcorn appropriate to increase total revenues? Why, or why not? Briefly explain in the box below.
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Answer = |
No, because there was a demand for a small popcorn, this was affected by the price going up. The theater lost revenue. When looking at last month's revenue for the theater, it stands at $225, and this month was at $204.75. And the PED at 2.92 results in a highly responsive because of the price increase.
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E. Was the decision to decrease the price of candy appropriate to increase total revenues? Why, or why not? Briefly explain in the box below.
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Answer = |
Yes, because of the revenue for the candy increase from $228 to $238 this month. And the PED was at 1,32m, which makes it above 1. this makes the demand elastic.
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F. Was the decision to increase the price of hot dogs appropriate to increase total revenues? Why, or why not? Briefly explain in the box below.
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Answer = |
Yes, There was an increase in revenue from $175 to $189 for hot dogs. This allows the PED to be below 1. The demand is inelastic. Whenever the price increase, then the revenue increased.
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G. Was the decision to increase the price of movie tickets appropriate to increase total revenues? Why, or why not? Briefly explain in the box below.
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Answer = |
No, by the theater increasing the movie tickets, this decreases the demand. This affects their revenue from $3424, from last month to $2700 this month a reduced in revenue. Also, the PED is greater than 1, which shows an increase in the price, and the result causes a high reaction.
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