The managing director of My Kori-Lima Movie Theater Ltd has hired you as a consultant to advise on the ticket – pricing strategy. As a basis...

The managing director of My Kori-Lima Movie Theater Ltd has hired you as a consultant to
advise on the ticket – pricing strategy. As a basis for your recommendations you consider historical
ticket sales data which seems to suggest the following ticket – sales elasticities:
Own – price elasticity = -0.05
Refreshment price elasticity = -0.12
Nairobi Population elasticity = +0.65
Advertising elasticity = +0.70
The managing director is contemplating a moderate increase in ticket prices in order to increase revenue.
Explain whether this is a good idea

Own-price elasticity of demand is defined as a measure of the degree of responsiveness of the
quantity demanded of a commodity (tickets) to changes in price (of the commodity).
Own-price elasticity of demand is negative(-ve) implying that demand is a decreasing function of price, that is, an increase or decrease in price causes a decrease or increase in the quantity of video tickets demanded. The absolute value of the own-price elasticity of demand is far less than one (0.05)
suggesting that demand is highly inelastic.
It therefore means that an increase in ticket prices will no doubt reduce the demand for tickets but in
a much lesser proportion such that the overall ticket sales revenue increases.
Clearly, other things remaining constant, the managing director?s contemplation of a moderate increase in ticket prices in order to increase sales is indeed rational, prudent and therefore a good
idea.

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Wilfykil answered the question on February 4, 2019 at 13:40

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