A sports team is looking at attendance prices for its games. When it comes to ch
ID: 1150774 • Letter: A
Question
A sports team is looking at attendance prices for its games. When it comes to charging local businesses, price elasticity of demand is -1. When it comes to charging individual family members, price elasticity of demand is -6. For local businesses, revenue is $1,224,000 at 17,000 and 18,000 people. Ticket price is $72 and $68, respectively. For individual family members, revenue is at $1,167,330 and $1,224,000 at 17,000 and 18,000 people. Ticket price is $68.67 and $68, respectively. Comparing the price elasticity of demand, why is it that local businesses and individual family members are charged differently?
Explanation / Answer
Ans
It is simple. Since elasticity is different it is more profitable to charge different prices. The firm should charge local business more because elasticity is less. There is greater marginal revenue in this market than in the market for individual families.