Suppose the supply and demand curves are given by Find the o

Suppose the supply and demand curves are given by Find the oquiWnum price and quantity b If the current price is $10. what is the quantity demanded and quantity supplied and what happens in the markot for this product? Assume that the come e.ssticty of demand for off-Broadway theatre performance North Carolina Theatre at Flat Rock estimated as 3 0 Most of the patrons of these theatre* are retirees Over the tast four years, interest rates have been very low so bond coupon returns and CO returns have been low affect he come of many retirees. Given this -\"tormaton, how do you think following have been affected at these type performances? Explain each answer Number of tickets sold -Revenues - Number of \"support gifts\" (contributions in excess of ticket saves) Assume that me average price elasticity of demand for Broadway shows in New York is 5 (more popular shews will be even less) You nave been hired as a consultant to a haw show that will be opening in July so demand lor this particular show is not yet known Assaming that you believe the show will gat excellent ,Views and will run for many weeks, would you recommand that the producers price above or below the average price of Broadway shows? Explain with detail including total revenue concepts.

Solution

QUESTION - 1

QD = 200 - 2P

QS = 100 + 3P

(a) In equilibrium, QD = QS.

200 - 2P = 100 + 3P

5P = 100

P = 100 / 5 = 20

Q = 200 - 2P = 200 - 40 = 160

(b) Current price = 10

QD = 200 - 2P = 200 - 20 = 180

QS = 100 + 3P = 100 + 30 = 130

So, QD > QS, resulting in a market shortage caused by excess demand.

QUESTION - 2

An income elasticity of 3 means, if income increases (decreases) by 1%, number of tickets demanded increases (decreases) by 3%.

Since income of majority of customers (retirees) have gone down, demand for tickets will also go down, and revenue will decrease (since demand decreases at a faster rate than income decreases).

Since ticket sales decrease, excess of contribution over ticket sales increases.

QUESTION - 3

Average price elasticity of demand is 0.5, which is less than 1. So, demand is inelastic. As price increases (decreases) by 1%, demand decreases (increases) by 0.5%.

In an inelastic market, it is wiser to increase the price over the average price charged because total revenue (price multiplied by quantity) increases with a price hike.