AMC Theaters is considering raising the price of its tickets from $10 to $13. In order to make sure that this strategy is profitable, the theater is testing a pricing increase of $1.00 throughout America. For each $1.00 increase, demand drops 5%; demand is 3500 units when the tickets are priced at $10. The theater's fixed costs are $10,000 and unit variable cost is $3. Based on this information, calculate the following: a. The price elasticity of demand. Is it elastic, inelastic, or unitary elastic? b.Calculate the demand, fixed costs, variable costs, and profit for each price (i.e = $10, $11, $12, $13). What is the most profitable selling price and what profit should the theater expect at this price?

AMC Theaters is considering raising the price of its tickets from $10 to $13. In order to make sure that this strategy is profitable, the theater is testing a pricing increase of $1.00 throughout America. For each $1.00 increase, demand drops 5%; demand is 3500 units when the tickets are priced at $10. The theater's fixed costs are $10,000 and unit variable cost is $3. Based on this information, calculate the following: a. The price elasticity of demand. Is it elastic, inelastic, or unitary elastic? b.Calculate the demand, fixed costs, variable costs, and profit for each price (i.e = $10, $11, $12, $13). What is the most profitable selling price and what profit should the theater expect at this price?

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter14: Pricing Techniques And Analysis

Section: Chapter Questions

Problem 7E

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