[nraiford]

Before the beginning of the 2005 professional basketball season, the Phonenix Suns increased the price of their premium seats by 26% but decreased the prices of many other less attractive seats by 43%. Carefully explain the circumstances under which these actions would increase the Suns' revenue and profits.

[Curlyben]

What do YOU think.
While we're happy to HELP we will NOT do the work for you.

Show us you have at least attempted the question and where you are having issues.

[nraiford]

I think that by increasing the premium seats they might have made more money. Even though by decreasing the prices of less attractive seating, there would still be the potential for increasing revenue if the seats were purchased by having bodies in the seats and selling concessions, t-shirts, etc. Am I on the right track?

[ArcSine]

Under certain circumstances total revenue increases as a result of a unit price increase, and in other particular circumstances a price decrease results in greater total revenue.

Those circumstances that determine which direction total revenue moves in response to a price change fall under the heading of price elasticity of demand, which is that "right track" you're looking for. In your text's discussions of elasticity you'll find the sub-topic of how elasticity relates to profit- or revenue-maximization.

You take it from here, and check back in with your progress.

[paraclete]

What you are doing is examing the elasticity of demand In this situation they have determined that the demand for the premium seats is in-elastic that is they will be sold because price is not the determining factor however they have also determined that the demand for other seats is very elastic and that price may be a factor so they will make more money if all the seats are filled, other merchandising sales may be a factor as you suggest

To properly analyise this you need to know volumes and the contribution each factor makes to profit