Answer to Question #185552 in Macroeconomics for Mark

Question

Let’s consider watching movies and focus on the movie theater experience. Let’s pretend that the movie theater industry is in perfect competition and that the equilibrium price of a movie at the theater should 13 be $10 and the equilibrium quantity should be 50 movie goers. Let’s say the theater has a full capacity of 100 people. a. Let’s first think of an empty movie theater (say only 5 people go /). In a standard supply and demand setting, illustrate this scenario. Be sure to label everything properly! Is an empty movie theater an example of a surplus or shortage? Show this on the graph. b. Based on your answer in a., how large is this surplus or shortage? (note this will depend somewhat on how you draw the graph so there is a large subset of right answers. There is still a much larger subset of wrong answers though so be sure to label things properly!) How should the movie theater respond in this situation? Why?

Answer 1

$$Solution$$

-There is a shortage since the demand and supply are below the equilibrium point .

-At the given equilibrium of fifty people : shortage will be /to be met will be 50-5=45

-lower the price level as a marketing strategy to attract more customers or meet shortage

or introduce offers to given packages of tickets if available .

• The reason should be to maximize on profits by increasing demand to the equilibrium point