Economics Homework Help

In this week’s discussion you are going to be the CEO of a company. In anticipation of the upcoming quarterly disclosure of profits, you prepare your Board of Directors for the pressure that cost-push inflation is having on profits. There will be some erosion of profits:

Big Time Entertainment – Big Time Entertainment is a nationwide firm providing movies, arcades and other in person entertainment venues such as bowling and roller skating. Our operations have been heavily impacted during the Covid-19 pandemic. On reopening we have been faced with a host of regulations that have greatly increased our cost of operations. 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 patron to cover the higher cost for cleaning and other measure to protect the public and our employees. Price elasticity of demand is 1.6 and we are also faced with more competitors, online entertainment and gaming, that are not experiencing these cost pressures.

Now explain:

• 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, show your calculation of the percentage change in the quantity demanded if your prices are raised by 10%. You must provide a calculations showing the percentage change in quantity demanded.
• Given your company’s price elasticity of demand and the industry supply/competitive environment you face, prepare a statement for your board as to the potential impact on profits. Who will pay the larger share of the cost increases, your firm or your customers?