Question 1 Suppose the supply and demand curves are given by

Question 1 Suppose the supply and demand curves are given by Qo= 200-2P as 100 + 3P a. Find the equilibrium price and quantity b. If the current price is $ 10, what is the quantity demanded and quantity supplied and what happens in the market for this product? Question 2 at the Assume that the income elasticity of demand for off-Broadway theatre performances such as those North Carolina Theatre at Flat Rock is estimated as 3.0. Most of the patrons of these theatres are retirees. Over the last four years, interest rates have been very low so bond coupon returns and Co returns have been low affecting the income of many retirees. Given this information, how do you think the answer. following have been affected at these type performances? Explain each a Number of tickets sold . b. Revenues - c. Number of \'support gifts\" (contributions in excess of ticket sales) Question 3 Assume that the average p shows will be even less). You have been hired as a consultant so demand for this particular show is not yet known. Assuming that you believe the show will get excellent reviews and will run for many weeks, would you recommend that the producers price above or below the rice elasticity of demand for Broadway shows in New York is 5 (more popular to a new show that will be opening in July 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.

NOTE: Out of 10 questions, the first 3 are answered.