S. Klepper, Economics 73-100, Fall 2011

Mini-test 3

Last season a Pittsburgh theatre company produced six plays and charged $35 per ticket for each play. Consumers were allowed to purchase tickets to all the plays before the season began or could buy individual tickets to each play. The play series was a big success, with each play sold out exactly in the sense that the number of tickets that consumers wanted to purchase, and did purchase, equaled the capacity of the theatre where the plays were shown.

Which of the following statements concerning this situation are correct? Mark true for a correct answer and false for an incorrect one and provide explanations for each of your answers.

_____1. The theatre would have decreased its revenues if it had charged a price less than $35 per ticket.

_____2. The theatre would have increased its revenues by charging a price of over $35 per ticket.

_____3. The fact that the theatre just sold out implies that at a price of $35 per ticket the price elasticity of demand equaled one.

_____4. If the price elasticity of demand for plays were less than one, the theatre would have increased its total revenues by charging a price greater than $35 (by a small amount).

_____5. If the price elasticity of demand for plays were greater than one, the theatre would have increased its revenues by charging a price less than $35 (by a small amount).