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31 May, 19:48

Your local movie theater earns a total revenue of $40,000 per month when the price of a movie ticket is $8, and it earns a total revenue of $35,000 when the price of a movie ticket is $10. Demand is elastic, inelastic, or unitary elastic?

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  1. 31 May, 19:59
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    Inelastic

    Explanation:

    Elasticity of demand = percentage change in quantity demanded / percentage change in price

    percentage change in quantity demanded =

    35,000 - 40,000/40,000 = - 0.125 = - 12.5%

    percentage change in price = $10 - $8 / $8 = 0.25 = 25%

    Elasticity = - 12.5%/25% = - 0.5

    Demand is inelastic because the elasticity of demand is a less than 1.

    Elasticity of demand measures how quantity demanded changes when price change.

    Demand is inelastic when a change in price has no effect on quantity demanded. Inelastic demand has a value of less than 1.

    Demand is elastic if a change in price has an effect on quantity demanded. Elastic demand has a value of more 1

    Unitary elastic is when a change in price has the same proportional effect on a change in quantity demanded. Unitary elastic demand has a value of 1.
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