Beth Quinn 219177 Unit_III_Assignment_Worksxjz

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Columbia Southern University *

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ECO 2301-2

Subject

Economics

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Apr 3, 2024

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docx

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13

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Unit III Assignment Worksheet Background Information The Ruby Red Movie Theater in town is in jeopardy of having to close its doors because it is unable to generate enough total revenue. In an effort to generate more total revenue, the movie theater manager decided to change the prices this month for drinks, popcorn, candy, hot dogs, and movie tickets. The manager would like for you to analyze the data that has been collected to help decide if the decisions to change the prices were correct and, if not, what should be done to prices to generate more total revenue. Be sure to answer all of the questions in this worksheet. Question 1 Information regarding the community’s average income and movie ticket sales at the Ruby Red Movie Theater for both last year and this year are presented below. Use this information when answering questions A-C, below. Last Year This Year Community’s Average Income $55,800 $57,474 Movie Ticket Sales $4,980 $5,021 A. Calculate the Income Elasticity of Demand for movie tickets. (Show your work; you can type it in the box below, or write it out by hand, take a picture, and insert the picture in the box. Make sure it fits in the box. NOTE: These options apply to all “Show your work” responses.) $55,800 + $57,474 = $113,274 = $56,637 2 2 2 $4,980 + $5,021 = $10,001 = $5,000.50 2 2 2 $55,800 - $57,474 = -1,674 $4,980 - $5,021 = -41 56,637 ÷ 5,005.50 = 11.326 -41÷ -1674 = 0.02449 0.02449 • 11.326 = 0.2774
B. Are movie tickets considered to be inferior goods, normal goods, or unit (unitary) goods in this town? Explain why. Movie tickets are considered normal goods because the elasticity of demand is between 0 and 1. C. A new firm is relocating to the city and adding a large number of above average salaries. Will the number of movie ticket sales for the theater increase, decrease, or remain constant? Base your answer on information you answered in part B above. Based on the information above, the number of movie tickets should increase as the salaries increase. Increased salaries should increase demand. Continue on next page
Question 2 The manager at Ruby Red Movie Theater decided to change the prices of concession stand items as well as tickets this month in an effort to increase revenues. Below, you are provided with prices for last month and this month as well as the quantities demanded for both months. Use this information when answering questions A-H, below. Price Quantity Demanded Item Last Month This Month Last Month This Month Large Drink $6.00 $5.50 150 161 Large Popcorn $7.50 $8.00 125 101 Small Drink $2.50 $2.00 75 80 Small Popcorn $5.00 $5.25 45 39 Candy $4.00 $3.50 57 68 Hot Dog $5.00 $5.25 35 36 Movie Tickets $8.00 $9.00 428 300 A. Calculate the total revenues earned by the theater last month and this month (Show your work). Last Month Large Drink 6.00 x 150 = $900 Large Popcorn 7.50 x 125 = $937.50 Small Drink 2.50 x 75 = $187.50 Small Popcorn 5.00 x 45 = $225 Candy 4.00 x 57 = $228 Hot Dog 5.00 x 35 = $175 Movie Tickets 8.00 x 428 = $3,424 900+937.50+187.50+225+228+175+3424 = 6077
This Month Large Drink 5.50 x 161 = $885.50 Large Popcorn 8.00 x 101 = $808.00 Small Drink 2.00 x 80 = $160.00 Small Popcorn 5.25 x 39 = $204.75 Candy 3.50 x 68 = $238.00 Hot Dog 5.25 x 36 = $189.00 Movie Tickets 9.00 x 300 = $2,700 Total revenues last month = $6077 Total revenues this month = $5185.25
B. Calculate the price elasticity of demand for large drinks . (Show your work) 6 + 5.50 = 11.50 = 5.75 2 2 150 + 161 = 311 = 155.50 2 2 6 – 5.50 = .50 150 – 161 = -11 5.75 ÷ 155.50 = 0.036977492 -11 ÷ .50 = -22 0.03677 x -22 = -0.813 Is the price elasticity of demand for large drinks price elastic, inelastic, or unit (unitary)? Briefly explain why in the box below. Answer = The price elasticity of demand is less than <1 making it inelastic. Continue on next page
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