Problem
The demand curve for seats at the Drive-in Delight Theatre is given by P = 48-0.2Q. The supply of seats is given by Q = 40.
(a) Plot the supply and demand curves to scale, and estimate the equilibrium price.
(b) At this equilibrium point, calculate the elasticities of demand and supply.
(c) The owner has additional space in his theatre, and is considering the installation of more seats. He then remembers from his days as an economics student that this addition might not necessarily increase his total revenue. If he hired you as a consultant, would you recommend to him that he install additional seats or that he take out some of the existing seats and install a popcorn concession instead? [Hint: You can use your knowledge of the elasticities just estimated to answer this question.]
(d) For this demand curve, over what range of prices is demand inelastic?
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.