To conduct an experiment AMC increased movie tickets prices

To conduct an experiment, AMC increased movie tickets prices from $9.00 to $10.00 and measure the change in ticket sales. Using the data over the following month, they concluded that the increase was profitable. However, over the subsequent months, they changed their minds and discontinued the experiment. How did the timing affect their conclusion about the profitability of increasing prices?

Solution

AMC increased movie tickets prices from $9.00 to $10.00

Suppose if quantity of tickets =100

             If price of ticket = $9.00

Then total sale is $900

Suppose if quantity of tickets= 100

             If price of the ticket= $10.00

Then total sale is $1000

Therefore profit = $100

The break-even point expressed in terms of sales volume

Selling price per unit X no. of units sold

= (variable cost per unit X no. of units sold) + fixed cost

The break-even sales volume expressedin units can be converted in break-even sales volume expressed in dollars by multiplying the sales price per unit times the number of units sold.

Sales price per unit X Number of units sold = sales volume in dollars

              $ 9               X               100              =                     $ 900

              $10              X               100              =                      $1000

Timing affects their conclusion about the profitability of increasing prices

Deciding How Much to Change Prices

Sometimes businesses announce major price hikes, even doubling their previous rates. One theory is that a single large price hike will get the pain over with. Businesses may also announce large price hikes when they\'ve experienced major increases in the price of a key ingredient or cost component. A company that is being overwhelmed by sales volume from an unexpectedly popular product may jack up prices to reduce demand to a manageable level.

However, most price hikes are done in stages on the theory that customers will be accustomed to higher prices over time and be willing to tolerate them as they become more loyal. A series of smaller hikes may not even be noticed by customers who would be seriously put off by a single large one.

If you have more than one product, consider raising prices on some items while leaving the others the same, or even lowering them. Some customers are sensitive to the slightest price hikes for a particular item while mostly ignoring other increases.

The break-even point (i.e., the point where total revenue equals total cost) in units can be determined by dividing fixed costs by the contribution margin per unit. The break-even point expressed in sales dollars can be determined by multiplying the number of break-even units by the sales price per unit. To LO11 Identify the limitations associated with cost volume-profit analysis. Volume, and determine sales in units to obtain a designated profit, the sum of fixed costs and desired profit is divided by the contribution margin per unit. The contribution margin per unit can also be used to assess the effects of changes in sales price, variable costs, and fixed costs on the company’s profitability.