Question

You own a small town movie theatre. You currently charge $5 per ticket for everyone who comes to your movies. Your friend who took an economics course in college tells you that there may be a way to increase your total revenue by increasing the price. Is this necessarily a good idea? What is/explain/describe the relationship between revenue and elasticity?

Answer 1

Answer:

An increase in price will increase revenue only if demand is inelastic.

Explanation:

A person owns a small-town movie theatre.

The price of a ticket for everyone is $5/ticket.  

An increase in price will cause revenue to increase if the demand for tickets is inelastic. An inelastic demand implies that a change in the price of the product would cause a less than proportionate change in the quantity demanded of the product.  

If demand is inelastic an increase in price will cause less than a proportionate decrease in quantity demanded. Overall, total revenue will increase.