Problem 2 - Diagram Adult Demand Child Demand Price Price $10 $10 O) O N O DD + M N H NH O O 10 20 30 40 50 60 70 80 90 100 Quantity 5 10 15 20 25 30 35 40 45 50 Quantity110 minutes remaining X 4 OF 5 QUESTIONS REMAINING Problem 2 - Elasticity of Demand - 18 Marks You own a small-town movie theatre. You currently charge $5 per ticket for everyone who comes to your movies. Your friend who took an economics course in college tells you that there may be a way to increase your total revenue. Given the demand curves shown, answer the following questions. a. What is your current total revenue for both groups? 5 Marks b. The elasticity of demand is more elastic in which market? 1 Mark c. Which market has the more inelastic demand? 1 Mark d. What is the elasticity of demand between the prices of $8 and $5 in the adult market? Is this elastic or inelastic? (Use the mid-point formula). 4 Marks e. What is the elasticity of demand between $6 and $4 in the children's market? Is this elastic or inelastic? (Use the mid-point formula). 4 Marks f. Given the graphs and what your friend knows about economics, he recommends you increase the price of adult tickets to $8 each and lower the price of a child's ticket to $4. How much could you increase total revenue if you take his advice? 3 Marks A.( 5* 50) + (5* 20) = 250+100=350 B. The elasticity of demand is more when demand is flatter. This indicates that the second market has more elastic demand . c. The first market has more inelastic demand because it is steeper than the second market