A multi-plex theatre area is experiencing a decline in the number of tickets sold, falling revenues, and inadequate profits. The average price of a ticket is $20 and there are 1000 tickets sold daily on average. The estimated price elasticity of demand is 1.5 and the theatre currently operating at an average of 75 percent of capacity. There are three proposals in front of the management to consider:Proposal A: a 10 percent increase in the average price of a ticket.Proposal B: an aggressive advertising campaign (which is expected to reduce the elasticity of demand to 1), and a 10 percent increase in the average price of a ticket. Proposal C: a 10 percent decrease in the average price of a ticket. Which proposal do you support and why?

A multi-plex theatre area is experiencing a decline in the number of tickets sold, falling revenues, and inadequate profits. The average price of a ticket is $20 and there are 1000 tickets sold daily on average. The estimated price elasticity of demand is 1.5 and the theatre currently operating at an average of 75 percent of capacity. There are three proposals in front of the management to consider:Proposal A: a 10 percent increase in the average price of a ticket.Proposal B: an aggressive advertising campaign (which is expected to reduce the elasticity of demand to 1), and a 10 percent increase in the average price of a ticket. Proposal C: a 10 percent decrease in the average price of a ticket. Which proposal do you support and why?

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter3: Demand Analysis

Section: Chapter Questions

Problem 10E

See similar textbooks

Similar questions

The economic analysis division of Mapco Enterprises has estimated the demand function for its line of weed trimmers as QD=18,000+0.4N350PM+90Ps where N=numberofnewhomescompletedintheprimarymarketarea PM=priceoftheMapcotrimmerPS=priceofitscompetitorsSurefiretrimmer In 2010, 15,000 new homes are expected to be completed in the primary market area. Mapco plans to charge $50 for its trimmer. The Surefire trimmer is expected to sell for $55. What sales are forecasted for 2010 under these conditions? If its competitor cuts the price of the Surefire trimmer to $50, what effect will this have on Mapcos sales? What effect would a 30 percent reduction in the number of new homes completed have on Mapcos sales (ignore the impact of the price cut of the Surefire trimmer)?
The Potomac Range Corporation manufactures a line of microwave ovens costing $500 each. Its sales have averaged about 6,000 units per month during the past year. In August, Potomac's closest competitor, Spring City Stove Works, cut its price for a closely competitive model from $600 to $545. Potomac noticed that its sales volume declined to 4,500 units per month after Spring City announced its price cut. What is the arc cross elasticity of demand between Potomac's oven and the competitive Spring City model? 1.5 –1.5 0 3.0 If Potomac knows that the arc price elasticity of demand for its ovens is −1.0, what price would Potomac have to charge to sell the same number of units it did before the Spring City price cut? $375 $450 $429 $667
A mechanical pencil manufacturer sells 3570 pencils per quarter for $0 per pencil. The price elasticity for the product was estimated to be 3.7. If the manufacturer decides to change the price by 18 percent then by what percentage should the quantity sold change? Report your percentage as a whole number such that 20 percent would be reported as 20 NOT 0.2
Cyber Novelties is a direct sells company that sells small gadgets over the Internet. The marketing research staff at Cleveland-based Cyber Novelties has developed the following annual sales estimate: Proposed Selling Price Sales Estimate (Units) $8 55,000 $10 22,000 $15 14,000 $20 5,000 $24 2,800 The demand is insensitive below $8. The new product has an annual fixed cost of $60,000 and a variable cost of $7 per unit. 1. Referring to Cyber Novelties above. calculate the elasticity between $10 and $15 2. What is the breakeven quantity at a price of $10? 3. Referring to Cyber Novelties above, which of the proposed selling prices would generate the largest profit? 4. After conducting additional marketing research. Cyber Novelties estimates that by increasing the spending $75.000 annually for advertising and $0.05 per-unit allocation for extra promotion on the web will produce the following increases in estimated sales: 143,000 units at an $8 unit selling price, 48,000…
Dashboard for Online Pricing Online the timing and tailoring of prices to specific models of products is the key to successful pricing in online markets. And “Thanks to the ready availability of data in online markets, a pricing manager can easily approximate the elasticity of demands for the different products it sells online.” Assuming a 10 percent decrease in price increases sales by 25 percent, calculate the price elasticity of demand? If the wholesale price of the online product is $50 and sells at a price comparison site that charges $.50 per click and boasts a conversion rate of 5 percent (an average of 20 clicks are needed to generate a sale). What price should you charge for the product? What is the optimal markup on cost? The authors assert that price sensitivity is affected by (1) product life cycles, and (2) numbers of competitors. In fact, “when the number of competing sellers doubles, a firm’s elasticity of demand is expected to double (and you should be able to…
You are in management at Superior Industries Inc., the only company in the world sells the popular consumer item widgets. A rival company makes wodgets which are a weak competitor to your product. A small consulting company with MBA students from NotUNB have written a report for Superior Industries with the important statement, “Our estimates show that the demand elasticity for widgets is elastic (-1.8 or 1.8 in absolute value) and we strongly recommend that Superior Industries lower its price to increase revenues and market share.” In another sense, their statement misses the point. Explain.
A multi-plex theatre area is experiencing a decline in the number of ticketssold, falling revenues, and inadequate profits. The average price of a ticketis $20 and there are 1000 tickets sold daily on average. The estimated priceelasticity of demand is 1.5 and the theatre currently operating at an averageof 75 percent of capacity. There are three proposals in front of themanagement to consider:Proposal A: Proposal B: an aggressive advertising campaign (which is expected to reduce the elasticity of demand to 1), and a 10 percent increase in the average price of a ticket.
PNG’s managers estimate that a 50% increase in price would cause an 80% reduction in the quantity of product sold. Total fixed costs for the product are $5000 and total variable costs are $4000, based on production of 400 units. The following values may be useful. 1n (0.2) = –1.609 1n (1.5) = 0.405 1n (0.5) = –0.693 1n (4000) = 8.294 1n (0.8) = –0.223 1n (5000) = 8.517 What is PNG’s price elasticity of demand? –0.252 +0.322 –3.973 +3.108
OPEC currently produces about 38 per cent of the world output of oil. Assuming the short-term price elasticity of demand is 0:28, estimate the effect of the output cut on the current price, stating any assumptions in your calculations.
Q)1 a)What is the breakeven price of a product if the sales plan is 10,000 units, fixed costs are $20,000, variable cost is $4 per unit, and the profit goal is $5,000?b) What is the PE(Price Elasticity) of a product that sold 100 units at $5 and 73 units after the price was raised to $6?
Calculate the market equilibrium level of price and quantity for housing unit? Calculate price elasticity of demand using point elasticity method when the construction industry is in equilibrium and interpret the result? Qd = 25000-2P Qs = 10000+1p
The price for some intra-Asia container shipping services, such as the container shipping fee for China-to-Singapore freight, raised up to five-year high in mid-November 2020. Some Singapore consumers believed that annual major promotion of leading ecommerce sites in China and Singapore, especially the double-11 shopping festival, caused the rapid increase of China-to-Singapore container shipping cost. However, others speculated that there might be some supply-side changes causing the spike in sea shipping rate.Search and collect information regarding changes in the Asian container shipping market from at least two news articles. Apply the supply-and-demand theory to analyse the change of short-run market equilibrium. Based on your findings evaluate the gain or loss of consumer surplus, producer surplus and total surplus. You must use appropriate market diagrams to illustrate and interpret your findings.