Suppose a restaurant serves 400 meals per day on average at an average price of $20 per
Question:
Suppose a restaurant serves 400 meals per day on average at an average price of $20 per meal.
Based on a survey, the manager decided that lowering the price of the meal to $18 would increase the quantity demanded to 450 per day.
1. Calculate the price elasticity of demand between these two points.
2. Do you expect total revenue to rise or fall? to explain.
3. Suppose that after reducing the average meal price to $18, the restaurant considers an additional reduction to $16. Another survey shows that the required amount of meals will increase from 400 to 495 per day.
Calculate the price elasticity of demand between these two points.
4- In light of your knowledge of the elasticity of demand and based on your calculations, do you expect the total revenue to increase or decrease as a result of the second price reduction? Explain your answer.
5 . Calculate total revenue at each of the three meal prices.
Do the numbers confirm your answers in (3) and (4) above?
Expert Answer:
1 PEd125 2 Revenues are expected to rise due increase in sales volume as as a result of reduce... View the full answer
