Question

According to one study, the price elasticity of demand for restaurant meals is 2.27. This implies that if restaurants want to increase their total revenues they should_______________.
a. decrease price.
b. leave price unchanged.
c. increase price.
d. cannot be determined with the information given.

Answer 1

Answer:

(A) decrease price

Explanation:

Price elasticity is a measure showing how consumers react to the prices of products and services. It is a measure of the relationship between a change in the quantity demanded of a particular good and a change in its price. When the price rises, demand decline and when price declines, demand rises. Also, depending on the product/service and the market, how consumers react to a price change can vary.

Therefore, if restaurants want to increase their total revenues they should decrease their price as that result to rise in demand, and consequently increase in their total revenues.