Final answer:
To maximize daily revenue, the food truck should lower its price based on the price elasticity of demand. The profit-maximizing price can be determined using the formula: Profit-Maximizing Price = Unit Cost + ((1 / Elasticity) * Unit Cost). After determining the profit-maximizing price, the maximum daily revenue can be calculated by multiplying the price by the number of hot dogs sold at that price.
Step-by-step explanation:
To determine the price that maximizes daily revenue, we need to find the price that corresponds to the highest number of hot dogs sold. We can start by finding the price elasticity of demand. The formula for price elasticity of demand is:
Elasticity = (Percentage change in quantity demanded) / (Percentage change in price)
Based on the given information, we know that a 0.20 decrease in price resulted in 5 more hot dogs sold. So:
Elasticity = (5 / 80) / (0.20 / 4) = 0.0625 / 0.05 = 1.25
Since the price elasticity of demand is greater than 1, we can conclude that demand is elastic. This means that a decrease in price will result in a proportionally larger increase in quantity demanded.
Therefore, to maximize daily revenue, the food truck should lower its price. However, we cannot determine the exact price without knowing the cost of producing each hot dog. If we have information about the cost, we can calculate the profit-maximizing price using the formula:
Profit-Maximizing Price = Unit Cost + ((1 / Elasticity) * Unit Cost)
Once we have the profit-maximizing price, we can calculate the maximum daily revenue by multiplying the price by the number of hot dogs sold at that price.