8. The demand curve for seats at Off Highwav Starlight Theatre is given by P = 48 - 0.2Qd. The supply of seats is given by Qs = 40.

a) Plot the supply and demand curves and estimate the equilibrium price.

b) At this equilibrium point, what are the price elasticities of demand and supply?

c) The owner has additional space in his theatre and is considering the installation of more seats. He then remembers from

his days as an economics student that this addition might not necessarily increase his total revenue. If he hired you as a consultant, would you recommend that he install additional seats or take out some of the existing seats and install a popcorn stand instead?

d) How many more seats would you recommend that he install or take out, if the goal is to maximize his total revenue? What would be the price charged?

e) For the above demand curve, over what range of prices is demand inelastic? Over what range is demand elastic?

Question 9

9. Consider the own- and cross-price elasticity data in the table below: Percentage Change Percentage Change in Price in Quantity CDs Magazines Cappuccinos (135 -0.25 43.06 0.01 Magazines -0.13 -1.20 0.27 Cappuccinos 0.07 0.41 -O.85 a] For which of these three goods is demand price-elastic and for which is demand inelastic? b] What is the effect of an increase in the price of CDs on the purchases of magazines and cappuccinos? What does this suggest about the relationship between CDs and these other commodities; are they substitutes or complements? The demand curve for seats at Off Highwav Starlight Theatre is given by P = 48 - 0.2Qd. The supply of seats is given by Q; = 40. Plot the supply and demand curves and estimate the equilibrium price. At this equilibrium point, what are the price elasticities of demand and supply? The owner has additional space in his theatre and is considering the installation of more seats. He then remembers from his days as an economics student that this addition might not necessarily increase his total revenue. If he hired you as a consultant, would you recommend that he install additional seats or take out some of the existing seats and install a popcorn stand instead? How many more seats would you recommend that he install or take out, if the goal is to maximize his total revenue? What would be the price charged? For the above demand curve, over what range of prices is demand inelastic? Over what range is demand elastic