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20 December, 15:03

You are the sales manager for a pizza company and have been informed that the price elasticity of demand for your most popular pizza is greater than 1 (that is, the elasticity coefficient or Ed is greater than 1). To increase total revenues, you should

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  1. 20 December, 15:17
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    decrease the sales price of that pizza.

    Explanation:

    When the price elasticity of demand (PED) is elastic, a small decrease in price will cause a larger increase in the quantity demanded.

    For example, the PED is 1.5 (elastic) and the price of pizza is $8 and you sell 100 pizzas.

    Prior to the price change total revenue = $8 x 100 = $800

    You decrease the price by 10% to $7.20 per pizza, and the quantity demanded increases by 15% ( = 1.5 x 10%) tot a total of 115 pizzas. Total revenue = $7.20 x 115 = $828
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Home » Business » You are the sales manager for a pizza company and have been informed that the price elasticity of demand for your most popular pizza is greater than 1 (that is, the elasticity coefficient or Ed is greater than 1).
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