CA Foundation · Business Economics · Theory of Demand and Supply
A cinema in Pune reduces its ticket price from ₹250 to ₹200 and finds that its total revenue from ticket sales falls. What can be concluded about the demand for its tickets over this price range?
Demand is inelastic. When a price cut lowers total revenue, the percentage increase in quantity demanded is smaller than the percentage fall in price, so the absolute value of price elasticity is below one. Elastic demand would raise revenue after a price cut.
- ADemand is elastic
- BDemand is unitary elastic
- CDemand is perfectly elastic
- DDemand is inelasticCorrect
Explanation
When price falls and total revenue also falls, the percentage rise in quantity is smaller than the percentage fall in price. This means the elasticity is less than one, so demand is inelastic. Elastic demand would make revenue rise after a price cut, and unitary elasticity would leave revenue unchanged.
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