Question

If the demand for drive-in movies is more elastic for couples than for single individuals, it will be optimal for theaters to charge one admission fee for the driver of the car and an extra fee for passengers. True or false? Explain.

Short answer

Therefore, the statement is True. If the demand for drive-in movies is more elastic for couples than for single individuals, it would be optimal for theaters to charge one admission fee for the driver of the car and an extra fee for passengers. This is because such a strategy can help maintain attendance rates among both types of patrons despite varying price elasticity of demand.

Step-by-step solution

Understanding Elasticity

First, it is crucial to examine the idea of elasticity. Elastic demand involves a strong change in demand in response to a change in price. If drive-in movie demand is more elastic for couples than for single people, it implies couples will alter their movie-going habits more dramatically as prices change. For instance, an increased cost might discourage couples more than singles.

Price Segmentation

Next, understand that subscribers' willingness to pay differs. Singles have a less elastic demand, implying they'd likely continue to attend even as prices rise. Meanwhile, for couples with more elastic demand, a price increase could result in a significant loss in demand. A method to optimize earnings may be to charge an admission fee for the driver and an additional fee for passengers. In this scenario, even if the total per-car price increases, the individual perceived price for couples (i.e. per person price) could seem lower, stimulating demand.

Evaluating the Statement

Once the impacts of pricing on different buyer behavior are well understood, evaluate the statement. Given the elasticity behaviours, it would make sense to give an admission charge for the driver and an extra charge for passengers. The segmentation would allow the theater to maintain demand among couples and not deter singles from attending.