Question

Red Baron Pizza discovered that if it reduced the retail price of its pizzas by 25% from $8 to $6, the demand for its pizzas increased 50% from 2 million to 3 million pizzas. Based on this experience they concluded that the elasticity of demand for their pizza products was:

Answer 1

Elasticity of demand for their pizza products was 2

Step-by-step explanation:

The formula for calculating elasticity of demand is given as:

Percentage change in quantity demanded divided by the percentage change in price.

From the question above, we are given the following:

Percentage change in quantity demanded = 50%

Percentage change in price = 25%

Therefore:

Elasticity of demand = 50% / 25%

Elasticity of demand = 2