Use the following hypothetical demand schedule for movies to do exercises 1–4.
Quantity Demanded Price Elasticity
100 5
80 10
60 15
40 20
20 25
10 30
1. a. Determine the price elasticity of demand at each quantity demanded using the arc or midpoint formula: Percentage change in quantity demanded ¼ (Q 2 Q 1)/Q 1 divided by percentage change in price ¼ (P2 P1)/P1.
b. Redo exercise 1a using price changes of $10 rather than $5.
2. Plot the price and quantity data given in the demand schedule of exercise 1. Put price on the vertical axis and quantity on the horizontal axis. Indicate the price elasticity value at each quantity demanded. Explain why the elasticity value gets smaller as you move down the demand curve.
3. What would a 10 percent increase in the price of movie tickets mean for the quantity demanded of a movie theater if the price elasticity of demand was 0.1, 0.5, 1.0, and 5.0?
4. Using the demand curve plotted in exercise 1, illustrate what would occur if the income elasticity of demand was 0.05 and income rose by 10 percent. If the income elasticity of demand was 3.0 and income rose by 10 percent, what would occur?
| Excercise 21.1. Use the following information to determine the |
| total fixed costs, total variable costs, average fixed |
| costs, average variable costs, average total costs, and |
| marginal costs. |
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| Total Output |
Cost |
TFC |
TVC |
AFC |
AVC |
ATC |
MC |
| 0 |
100 |
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| 1 |
150 |
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| 2 |
225 |
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| 3 |
230 |
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| 4 |
300 |
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| 5 |
400 |
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a. Calculate the total fixed costs, total variable costs, average fixed costs, average variable cost, average total costs, and marginal costs.
b. Plot each of the cost curves.
c. At what quantity of output does marginal cost, equal average total cost and average variable cost?
3. Using the table in exercise 1, explain what happens to ATC when MC > ATC, MC < ATC, and MC ¼ ATC.
4. Using the table in exercise 2, find the quantity where MC ¼ ATC. Find the quantity where ATC is at its minimum. Find the quantity that is the most efficient operating point for the firm.