1. A theater on Broadway recently increased the price of a ticket for a popular play by 8%. The attendance went down by 3%. What is the price elasticity of demand for tickets for this play? What factors, besides the increase in the price of the ticket, could have contributed to the reduction in attendance? Should the theater further increase or instead decrease the price of the ticket? What would be the optimal price of a ticket?
2. Digital Books, LLC is a company that sells e-books related to career advising and professional development. Digital Books, LLC earns a yearly positive economic profit of $25,000 if it can sell 10,000 e-books. Each time, a customer buys an e-book it incurs a cost of $0.50 (cost of downloading each e-book). Digital Books, LLC spends each year $100,000 developing new e-books (new topics and new editions). What is Digital Books, LLC's profit-maximizing price?
3. Assume you run a company that offers a product for which all consumers have an identical demand curve. Each consumer's demand curve is P = 20 - 4Q. The marginal cost of production is $4. Devise an optimal two-part tariff pricing policy.