A movie theatre raises ticket prices from $8 to $10 in order to raise revenues. The theatre's management is assuming the absolute value of the price elasticity of demand for tickets is
A) less than 1.
B) greater than 1.
C) equal to 1.
D) infinity.

Question

Quizplus · Accepted Answer

When the management of the theatre raises the ticket prices, they expect to make more money from the same number of customers or fewer customers. To accomplish this, the price elasticity of demand must be less than 1, indicating that a price increase does not cause a proportionate decrease in the quantity demanded. If the elasticity were greater than 1, then the higher price would result in a significant reduction in demand, and the revenue would decrease instead of increasing. Therefore, the best choice is A) less than 1.

A Movie Theatre Raises Ticket Prices from $8 to $10