* Appetizer price decreased from Rs 12 to Rs 10, a 16.7% decrease [(12 - 10)/12]
* Appetizer demand increased from 90 to 150 orders per day, a 66.7% increase [(150 - 90)/90]
* Point price elasticity of demand = % change in quantity / % change in price = 66.7% / -16.7% = -4
* Beverage sales increased from 300 to 600 units per day, a 100% increase
* Cross elasticity of demand = % change in beverage quantity / % change in appetizer price
= 100% / -16.7% = -6
* c) If the price decreases further to Rs 8:
* Appetizer demand would likely increase further due to higher price elasticity of demand.
* However, revenue may not increase if the % increase in demand is less than the % decrease in price.
* This is illustrated on a demand curve diagram, where a further decrease in price leads to lower total revenue despite higher quantity demanded.
* So revenue may or may not rise depending on the relative size of the demand increase versus the price decrease.
Here is the diagram that was requested:
Price per appetizer
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Rs 12 |
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Rs 10 | D
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Rs 8 |
Q1 Q2 Quantity of appetizers