S.
Klepper, Economics
73-100, Fall 2011
If
the theatre company lowered its price, the quantity demanded would have risen,
contributing to more people wanting to attend the theatre. However, if the theatre company was selling
out at a price of $35, it could not have accommodated any additional
viewers. Therefore, if it lowered its
price then the number of people attending the theatre would have been the same
but it would have taken in less revenue from each person, causing its total
revenues to decline. This would be true
regardless of the price elasticity of demand for plays. Alternatively, if it increased its price then
the number of people attending the theatre would have declined. If the price elasticity of demand were less than
one and the price increase was small, the percentage decrease in attendance
would have been outweighed by the percentage increase in price and the theatre
would have increased its revenues. The
fact that the theatre was sold out at $35 per ticket indicates nothing about
the price elasticity of demand, which calibrates the percentage change in the
quantity demanded per percentage change in price.
Based
on this description, the answers to the individual questions are:
_____1. True
_____2. False—it depends on the price elasticity of demand.
_____3. False
_____4. True
_____5. False