20

A soccer promoter must allocate 40,000 seats in a stadium among the supporters of the two teams that are playing a match on Sunday, the Wolverton Gladabouts and Manteca United. The promoter can set different prices for seating the the Wolverton and the Manteca sections of the stands. If he sells W seats to the Wolverton supports he will receive 20 2000 for each ticket while he can get a constant 10 per ticket from Manteca supporters. The promoter's objective is to allocate the 40,000 seats and to maximize sales revenue. (If costs equal zero or do not change as the number of seats change, this is equivalent to maximizing profit.) Elasticity 1. What is the formula for the price elasticity of demand? 2. Can you put this formula into an English sentence? What would that sentence be? 3. If Total Revenue = TR = P x Q, is it possible for a firm's TR to fall if the firm raises its prices? Explain. 4. Is there a relationship between increases and price, changes in TR and elasticity? a. What is it? b. Try to put the answer into words and not just equations.