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The following equation represents the weekly demand that a local theater faces.

Qd = 2000 - 25 P + 2 A,
where P represents price and A is the number of weekly advertisements.
Presently the theater advertises 125 times per week. Assuming this is the only theater in town, and its marginal cost, MC, is equal to zero,

a. Determine the profit maximizing ticket price for the theater.
b. What is the price elasticity of its demand at this price?
c. What is the elasticity of its demand with respect to advertising?
d. Now suppose the theater increases the number of its ads to 250. Should the theater increase its price following this ad campaign? Explain.

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Yusra Anees
Yusra AneesLv10
28 Sep 2019

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Related questions

The Three Peaks Ski resort has estimated the following weekly demand function for their lift tickets.

Q = 12,500 - 125 P + 75 A
where:

Q = weekly number of lift tickets,
P = price of lift tickets
A = number of newspaper ads per week.

a. The Three Peaks charges $60 per ticket and has 20 advertisement notices in local papers. How many lift tickets do they expect to sell?
b. Keeping the advertisement level the same (at 20 ads), calculate the point (price) elasticity of demand at the above price ($60).
c. Keeping the price at $60, determine the elasticity of demand with respect to advertisement.
d. Now suppose that the manager of the Three Peaks increases the number the newspaper ads to 80 per week. Examine the effect of this change on the price elasticity of demand for lift tickets. Should the Three Peaks lower its price while increasing its advertisement? Explain.
e. Suppose each newspaper ad costs $1200, would you recommend spending more money on advertisement? Explain.

SaveUmoney Tax Services (STS) is a small operation that offers tax services to individuals and small businesses. A local marketing consultant has estimated the weekly demand for STS's services as follows: Q = 1200 - 6 P + 25 A where: Q = the number of tax returns prepared per week P= price A= advertisement (the number newspaper ads) Presently STS charges (on average) $50 per tax return and each week places 12 ads in a local newspaper. Each newspaper ad costs $150. a. How many tax returns does STS prepare each week? b. What is the price elasticity of demand at the price of $55, assuming the number of ads remains the same (at ten)? c. What is the elasticity of demand with respect to advertisements? d. At what price level does the demand curve intercept the price axis? e. At what quantity level does the demand curve intercept the quantity axis? f. Is STS maximizing its revenue? Explain? g. The marketing consultant recommends that STS increase the number of its ads to 25 ads per week and (to pay for the additional ads) raise its price. Do you agree with this recommendation? Explain. h. Assuming STS's objective is to maximize its total revenue, what price should it charge after it has increased the number of its newspaper ads to 40 ads per week? i. Now suppose the firm's total and marginal cost are as follows: TC = 6500 + 20 Q (The cost function includes advertising costs.) MC = 20 Assuming the number of ads remains at 25, what price should STS charge to maximize its profit? j. Calculate STS's profit at this price.

Exercise 1. Taco Del Mar has completed a study of weekly demand for its tacos in Washington State’s regional markets.

The study developed the following demand function: Q = 500 – 1,100P + 1.2A + 60Pop + 750Pc

where

Q is the number of tacos sold per store per store per week;

A is the level of local advertising expenditure in dollars;

Pop is the local population in thousands;

and Pc is the average taco price of local competitors.

For the typical Taco Del Mar outlet, P = $1.50, A = $1,200, Pop = 50, and Pc = $1.40

Use the Lab 3 Excel file and program the elasticity worksheet (using the appropriate formulas) to answer the following:

a. Estimate the weekly sales for the typical Taco Del Mar (given the above information).

b. What is the current own price elasticity for Taco Del Mar tacos?

c. Should Taco Del Mar raise its taco prices? Discuss why or why not.

d. Using Excel calculate the marginal revenue if Taco Del Mar increases its taco price to $1.70.

e. Calculate the advertising elasticity for Taco Del Mar tacos.

f. Use the advertising elasticity to predict the change in Q from a 1% increase in advertising expense.

g. Use your demand function to calculate the change in Q from a 1% increase in advertising expense.

h. Calculate the cross price elasticity of local taco competitors.

i. Are the competitor tacos complements or substitutes? Discuss why or why not.

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