demand and supply 1 answer below »

Assume the director of a theatre company in a small college town has the ability to set the price he charges for

his tickets, and that he can set different prices for different groups of customers. The director is considering

changing the way he prices tickets. He has hired an economic consulting firm to estimate the demand for

tickets. The firm has classified people who go the theatre into two groups, and has come up with two demand

functions. The demand curves for the general public (Q gp ) and students

Qs ) are given below:

Q gp= 500 – 5P

Q s= 200 – 4P

a) Graph the two demand curves on one graph, with P on the vertical axis and Q on the horizontal axis,

and graph the market demand curve on another graph.

b. If the current price of tickets is $35, identify the quantity demanded by each group. Find and interpret

the price elasticity of demand for each group at the current price and quantity.

c. Is the director maximizing the revenue he collects from ticket sales by charging $35 for each ticket?

Explain.

d. What price should he charge each group if he wants to maximize revenue collected from ticket sales?

 
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