3. The director of a theater company in a small college town is considering changing the way he

prices tickets. He has classified people who go to the theater into two groups and has come up

with two demand functions. The demand curves for the general public ( ) and for students

( ) are given below:

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

horizontal axis. Identify the quantity demanded by each group at the current ticket price

of $50.

b. Find 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 $50 for

each ticket? Explain.

d. What price should he charge each group if he wants to maximize revenue collected

from ticket sales?

Qgp

= 600 6P

Qs

= 300 4P

ECO 20250

4. By observing an individual's behavior in the situations outlined below, determine the relevant

income elasticities of demand for each good (i.e., whether it is normal or inferior). If you

cannot determine the income elasticity, what additional information do you need?

a. Bill spends all his income on books and coffee. He finds $20 while rummaging through

a used paperback bin at the bookstore. He immediately buys a new hardcover book of

poetry.

b. Bill loses $10 he was going to use to buy a double espresso. He decides to sell his new

book at a discount to a friend and use the money to buy coffee.

c. Being bohemian becomes the latest teen fad. As a result, coffee and book prices rise by

25 percent. Bill lowers his consumption of both goods by the same percentage.

d. Bill drops out of art school and gets an M.B.A. instead. He stops reading books and

drinking coffee. Now he reads The Wall Street Journal and drinks bottled mineral