Answer to Question #126085 in Microeconomics for Tshifaro T

Question

Suppose that you are the manager of a soccer stadium where all the tickets always have to be sold at the same price. Two matches are scheduled to be played during the next fortnight, the first between Sundowns and Pirates and the second between two First Division sides.

(A) Likewise, market research indicates that you can sell 15 000 tickets for the First Division fixture at R10 each, or 5 000 tickets at R20 each. Which option would you choose? What is the price elasticity of the demand for tickets for this game?

Answer 1

Computing Total revenue (TR)

Total revenue (TR) = Price * Quantity

i. When 15000 tickets are sold

Q = 15,000

P = R.10

Total Revenue (TR) = $15,000\times10 = R. 150,000$

ii. When 5000 tickets are sold

Q = 5,000

P = R.20

Total Revenue (TR) = $5000\times20 = R. 100,000$

Inference

The Total revenue obtained by the sale of 15,000 tickets at R.10 each is higher than that obtained when 5,000 tickets are sold at R.20 each. Hence, the best choice should be to choose sale of 15,000 tickets at a price of R.10.

Price Elasticity of demand

Price elasticity = %change in quantity / %change in price 

Price elasticity = $- (10,000\times10)/(15,000\times10) = - 0.67$

The demand exhibits inelastic demand implying that a change in price level leads to a less than proportionate change in the quantity demanded.