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Pricing in "Bart Gets an Elephant" - The Simpsons
by Dirk Mateer `

In the episode, Bart Gets an Elephant, the Simpson’s find that their pet elephant, Stampy, is eating them out of house and home. So Bart devises a plan to charge admission for people to see the elephant. He begins by charging $1. However, the revenue collected is not enough to cover Stampy’s food bill. When Homer discovers that they are not covering their costs, he raises the cost to see the elephant to $100. However, Homer is not the smartest businessman in the world and all of the customers that would have paid Bart’s $1 admission stay away. Using your understanding of elasticity explain why Homer’s plan backfires. Answer: Homer’s plan is to increase the price. This would work if the demand to see the elephant was inelastic – but it is not. For $100 you could see a concert, attend a major sporting event, eat out at a very nice restaurant, or buy an economics textbook! You’d have to really want to see the elephant to be willing to pay $100. It doesn’t help that you can also go to any of the best zoos in the country, and see hundreds of other animals as well, for much less money. Homer’s plan is doomed to fail because no one is willing to pay $100. Remember that total revenue = price ×quantity purchased. If the quantity demanded falls to zero, zero times anything is still zero. So Homer’s plan does not generate any revenue. In contrast, Bart’s admission price of $1 brings in $58 in revenue. This is a good start but not enough to cover Stampy’s $300 food bill. Homer actually had the right idea here. Raising the price above $1 would generate more revenue up to a point. Would most of the customers pay $2 to see the elephant? Most likely. $5? Possibly. $10? Maybe. $100? Definitely not. Why not? There is a trade-off dictated by the law of demand. Higher prices will reduce the quantity demanded and vice versa. Therefore, the trick to maximizing total revenue is to balance increases in price against decreases in the quantity purchased.

This Commentary is related to the following Clips:
Pricing in "Bart Gets an Elephant" - The Simpsons by Created by Matt Groening, Directed by Jim Reardon, Written by John Swartzwelder (1994) Homer tries to make a profit off of Bart's new pet elephant.