Big Time Entertainment - Big Time Entertainment is a nationwide firm providing movies, concerts, arcades, and other in person entertainment venues such as bowling and roller skating. Our operations have been heavily impacted during the Covid-19 pandemic, including continuing limits on number of guests and new costs associated with safety measures for both staff and customers. We are now reopening facing a continued cost push inflation. We also face uncertainty as to the potential for additional shutdowns. Customers are fearful plus the guidance on operating our facilities means we are operating far below our optimal number of patrons to cover the higher cost of everything. Price elasticity of demand is 1.6 and we are also faced with more competitors, online entertainment and gaming, that are not experiencing many of these cost pressures.
The Assignment:
Is the demand curve for your product relatively elastic, inelastic or unitary elastic? Demonstrate for your company's product, by how much the quantity demanded will change if you pass on a 10% increase in cost. In other words, prepare a forecast showing by what percentage the quantity demanded will change if your prices are raised by 10%. You must provide calculations showing the percentage change in quantity demanded.
Will you pass on most or all of the cost increase to your customers? Why or why not?