Principles of Microeconomics, 7th Edition

Published by South-Western College
ISBN 10: 128516590X
ISBN 13: 978-1-28516-590-5

Chapter 5 - Part II - Elasticity and its Application - Problems and Applications: 11


You should decrease the price of museum admission in order to increase total revenue.

Work Step by Step

Going to a museum is a luxury and not a necessity, so the demand for museum tickets will be elastic, as people enjoy going to museums but do not depend on museum visits as a basic human need (say, like visits to the doctor). Therefore, you should decrease the price of admission, as a decrease in price will cause an increase in quantity demanded that is greater in magnitude. Therefore, knowing that total revenue is calculated as $P\times Q$, we know that a decrease in price and an increase in quantity demanded that is greater in magnitude will increase total revenue mathematically.
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