The following example concerns a local cinema that has restored one screen and installed reclining seats. It faces competition from home streaming services....
Question 1 Report
The following example concerns a local cinema that has restored one screen and installed reclining seats. It faces competition from home streaming services. The cinema is considering a higher ticket price for films shown in the upgraded screen, while keeping ordinary-screen tickets unchanged.
(a) Identify the product improvement made by the cinema. [1]
(b) Which customers are most likely to value this improvement? [1]
(c) Explain why the cinema can use different prices for the two screens. [1]
(d) Show how much extra revenue the cinema receives if 80 upgraded tickets are sold at $3 more than ordinary tickets. [2]
Answer Details
(a) The cinema has added reclining seats to an upgraded screen. [1]
(b) Customers wanting a more comfortable or premium cinema experience are most likely to value this improvement. [1]
(c) The upgraded screen offers additional value through its improved seating. Some customers will pay a premium for this experience, while price-sensitive customers can still choose the ordinary screen at the standard price. [1]
(d) Extra revenue equals the number of upgraded tickets multiplied by the extra price per ticket:
\[80 \times \$3 = \$240\]
The cinema receives $240 extra revenue. [2]
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