The number of cinema tickets in Karachi and the ticket fares are regulated. The fare currently charged is Rs.500 a ticket. The Cinema Association want to obtain government's permission to raise the fare to increase their revenues and ask you to be their economic adviser. After studying the market, you come up with the following demand schedule for cinema tickets:

Price (Rupees per ticket)

Quantity demanded (tickets per month)

300

160

400

120

500

80

600

40

700

0

a)Calculate the price elasticity of demand for cinema tickets as the fare rises from Rs.500 to Rs.600. Is the demand price elastic or inelastic for this fare rise? What happens to the cinemas' total revenue if the fare rises from Rs.500 to Rs.600? Should the ticket sellers try to obtain permission to raise the fare?

b)Calculate the price elasticity of demand for cinema tickets as the fare falls from Rs.500 to Rs.400. Is the demand price elastic or inelastic for this fare decrease? Should the Cinema Association willingly accept this new price?