Should we see King Kong for $8, or The Ring 2 for $4?

1.Variable pricing plays on the theory of elasticity of demand. Under this pricing strategy, how do prices vary with elasticity of demand?

Prices should fall as elasticity rises, and rise as elasticity falls.

2.What should happen to producer surplus of movie theaters under this plan, as well as consumer surplus? Why?

Movie theaters should be able to increase its producer surplus at the expense of consumer surplus, because prices are more closely aligned with willingness to pay.

3.Should movies themselves be priced differently; that is, should King Kong have a different ticket price than Harry Potter? Why or why not?

Answers may vary; depends on how market is segmented. Ideally, at least one student will bring up the issue of the costs to make the movies-which lies, of course, at the heart of price discrimination.

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