Question

As the manager of a golf resort, you want to increase the number of tee times sold by 10%. Your staff economist (and junior caddy) has determined that the price elasticity of demand for tee times is -1.5 . Instructions: Round your answer to 2 decimal places. To increase sales by the desired amount, the price of a tee time should be by percent.

Answer 1

To increase tee time sales by 10% with a price elasticity of demand at -1.5, prices should be decreased by 6.67%.

Step-by-step explanation:

To answer how much the price of a tee time should be changed to increase sales by the desired 10%, we use the price elasticity of demand, which is given as -1.5. Since the elasticity is higher than 1 in absolute value (elastic demand), according to the provided reference, a decrease in price will lead to a proportionally larger increase in the amount sold, which increases total revenue.

We can use the formula for percentage change in quantity demanded:

Percentage change in quantity demanded = (Percentage change in price) × Price Elasticity of Demand

To increase sales by 10%, we set the percentage change in quantity demanded to 10 and solve for the percentage change in price:

10 = (Percentage change in price) × (-1.5)

Percentage change in price = 10 / (-1.5) = -6.67%

Therefore, to increase the number of tee times sold by 10%, the price should be decreased by 6.67%.