A movie theater raises ticket prices from $8 to $10 in order to raise revenues. The theater'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

If the absolute value of the price elasticity of demand is less than 1, then a price increase will result in a less than proportional decrease in the quantity demanded. In other words, the increase in price will not deter enough customers from attending the movie theater to offset the increase in revenue from the price hike. Therefore, the theater's management is assuming that demand is relatively inelastic, and a price increase will lead to an increase in revenue.

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