Scenario Suppose that a movie theater faces a downward sloping demand curve for popcorn and it...

Scenario Suppose that a movie theater faces a downward sloping demand curve for popcorn and it increases the price of a container of popcorn from $4.00 to $4.80, which causes the count of containers sold to fall from 100 to 90.

Questions 1. What is the elasticity coefficient?

2. Is the demand relatively elastic or relatively inelastic?

3. Should the theater consider raising the price of popcorn further?

4. When a firm faces a downward sloping demand curve, should it ever price its product in the inelastic range of the demand curve (if it has such a range)? Explain why or why not.

5. When a firm is a monopolist (or the only seller of a product), should it price its product in the elastic or inelastic range of its demand curve? Explain.

Expert Solution

Rahul Sunny answered 2 years ago

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