The managing Director of Kenya Movie Theatre Ltd. Has hired you as a consultant to advise on the ticket-pricing strategy. As a basis for our recommendations you consider historical ticket-sales date which seems to suggest the following ticket sales elasticities:
Own-price elasticity = -0.5
Refreshment price elasticity =0.12
Nairobi population elasticity = +0.65
Advertising elasticity = +0.70
(a) The managing director is contemplating a moderate increase in ticket prices in order to increases revenue. Explain whether this is a good idea. (5 marks)
(b) The managing director is also contemplating a moderate increase in the advertising budget in order to increase revenue. Is this a good idea? Explain (5 marks)
(c) How would you characterize the relationship between tickets and refreshments?
(5 marks)
(d) If the population of Nairobi increase from 120,000 to 122,400 people in the next one year, what would be the resulting impact on the ticket demand? Assume all other factors are held constant. (5 marks)
(Total: 20 marks)