Question

You are the curator of a museum. The museum is running short of funds, so you decide to increase revenue. What should you do to increase revenue if the price elasticity of demand is 2.4?A. Nothing, revenue is maximized at current admission price B. Lower the admission priceC. Raise the admission price

Answer 1

Answer:

The correct answer is letter "C": Raise the admission price.

Explanation:

Demand Elasticity is a measure of how demand changes with changes in other variables. Demand elasticity is often referred to as demand price elasticity since the price is the most frequently used factor for elasticity analysis. To calculate it, the percentage in quantity demanded is divided by the percentage in the price change. Results equal to or greater than one (1) imply the good or service in reference is elastic. If the result is lower than 1, then the product is said to be inelastic.

Thus, in an attempt of increasing revenue out of admission tickets, a museum curator could increase the price tickets since the demand elasticity for tickets is elastic (2.4 according to the case). That means museum visitors will react to the price change.