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The management of Local Cinema has estimated the monthly demand for tickets to be ln Q...

The management of Local Cinema has estimated the monthly demand for tickets to be ln Q = 22,328 − 0.41 ln P + 0.5 ln M − 0.33 ln A + 100 ln PDVD, where Q = quantity of tickets demanded, P = price per ticket, M = income, A = advertising outlay, and PDVD = price of a DVD rental. It is known that P = $5.50, M = $9,000, A = $900, and Pvcr = $3.00. Based on the information given, which of the following statements is false?

Movies are complements for DVD rentals

The advertising elasticity of demand for movie tickets is -0.33

Advertising decreases the demand for movie tickets

Movies are normal goods

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Answer #1

Movies are complements for DVD rentals

The sign on lnPDVD is positive meaning increase in price of DVD leads to increase in demand for movie tickets. This is true for substitutes.

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