Question

A local restaurant has estimated that the price elasticity of demand for meals is equal to 2. If the restaurant increases menu prices by 5%, they can expect the number of customers to decrease by ________and total revenue to ________.

Answer 1

Step-by-step explanation:

ed= 2 , Price increase by 5%.

Elasticity of Demand = % Change in Quantity demanded/ % change in price

% change in quantity demanded = 2*5%=10%

Since, the elasticity > 1 and price has decreased, the total revenue will decrease. The impact of price change on Total revenue is based on the relationship between elasticity of demand and Total revenue.

Thus, there will be 10% fall