Mr. Leslie finds that the TKTS booth should offer 30% rather than 50% discounts

Question

Mr. Leslie finds that the TKTS booth should offer 30% rather than 50% discounts to maximize revenue. What does this say about demand elasticity at: a ticket's face value price, at a 50% discounted price, at a 30% discounted price? Draw a hypothetical supply and demand graph for TKTS booth tickets on a given day assuming face value price for a ticket is $60. Indicate what you think producers are likely doing with a 50% discount and what Mr. Leslie is recommending with a 30% discount. I could really use some help with this question!! Please if you could give me some help!

Explanation / Answer

Hi, I am writing the part of the theoretical answer, though I cannot draw the diagram . Please look into the book for that. When thee is 50 % discounted price, it will mean that the demand elasticity of the price is price elastic, while a 30 % recommendation means that the demand elasticity of the product is inelastic meaning that the increase in price will result in a increase in total revenues, while 50 % discounted price means that decrease in price will result in a higher quantity demanded of the ticket, thus increasing the total revenue as producers think that the TKTS booth does not have an inelastic demand curve. Producers do know that as the product or service that they are trying to sell does not have unitary or inelastic demand. Its demand is highly elastic and a decrease in the ticket price by 50 % will result in an increase of quantity demanded by more than 50 % thus enabling them to earn a higher profits. Mr. Leslie thinks that the price offered by the producers is too low and that will result them in a loss rather than a profit and based upon his assumptions he thinks that the price should be discounted by 30 % not 50 % as decreasing the price in an inelastic area of demand results in a loss for producers.

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