Problem
1. Movie theaters often charge substantially less for afternoon showings than for evening showings. Explain how theaters use time of day to segment their customers into low-elasticity and high-elasticity groups.
2. Owners of a movie theater have determined that the elasticity of demand for movie tickets equals -2.0 for students and -1.5 for adults.
a. If the owners of the theater decide to segment the market, who should be charged a higher price, students or adults? Use your knowledge of microeconomic theory to explain why.
b. Use the Lerner index as described in the text to determine the ratio of prices. In percentage terms, how big a price premium should be charged to the group that pays the higher price?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.