Final answer:
To maximize sales, the price should be set at €0.10 per bun. The price elasticity of demand is calculated to determine the point at which elasticity is equal to -1.
Step-by-step explanation:
To find the price at which the sales are as large as possible, we need to determine the price elasticity of demand. The price elasticity of demand is calculated by dividing the percentage change in quantity demanded by the percentage change in price. In this case, if increasing the price by €0.10 leads to a decrease of 40 buns, the percentage change in quantity demanded is -40/2400 = -0.0167. The percentage change in price is 0.10/1.90 = 0.0526.
Using the formula for price elasticity of demand, we can calculate the elasticity as follows:
Elasticity = (-0.0167)/0.0526 = -0.317.
The price elasticity of demand is negative, indicating an inelastic demand for the buns. In order to maximize revenue, the price should be set at a point where the elasticity of demand is equal to -1. This means that a 1% increase in price will result in a 1% decrease in quantity demanded.
To find the price at which the elasticity is equal to -1, we can set up the following equation:
Elasticity = (-0.10)/P = -1
Solving for P, we have:
P = -0.10/(-1) = 0.10
Therefore, the price at which the sales are as large as possible is €0.10.