Aim for FiveMicroeconomics

Short free-response question

Raising ticket prices

  • Unit 2
  • 5 points
  • About 12 minutes

You can use a calculator on this question, just like on exam day.

A shorter question with a few lettered parts on one situation, often built on a table, a payoff matrix or a given or described graph. You make claims, explain them, calculate a value, or describe a labeled graph and show a change on it. On the exam: Questions 2 and 3 of 3 in Section II; 5 points each, a quarter of the section score each. About 12 minutes suggested for each. Four-function calculator allowed.

The question

The Starlight Cinema raises the price of a movie ticket from $10 to $12. As a result, the number of tickets it sells each night falls from 900 to 700. Nothing else that affects the demand for its tickets changes.

Suggested time: 12 minutes

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Part (a)

1 point

Using the midpoint method, calculate the price elasticity of demand for Starlight's tickets between $10 and $12. Show your work.

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Part (b)

1 point

Based on your answer to part (a), is the demand for Starlight's tickets elastic, inelastic, or unit elastic in this price range? Explain.

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Part (c)

1 point

Calculate the change in Starlight's total revenue per night caused by the price increase. Show your work.

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Part (d)

1 point

Starlight's owner wants to increase total revenue. Should the owner raise or lower the ticket price from $10? Explain using the total revenue test.

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Part (e)

1 point

Identify one factor that makes the demand for Starlight's tickets elastic, and explain how it does so.

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