You are the manager of a theater. At present, the theater charges the same admission price of $8 to all customers, regardless of age. You propose a two-tier pricing scheme: $5 for children under the age of 12 and $10 for adults. You tell your supervisor that your proposal is likely to increase revenue. What must be TRUE about the price elasticity of demand if your proposal is to achieve its goal of raising revenue? Explain your answer.
You believe that the price elasticity of demand for theater tickets for children is elastic. Hence, a decrease in price will increase revenue. The demand for tickets for adults is inelastic; therefore, increasing price for this group will increase revenue.