Question

The Poison Apple Diner had an average dinner cover charge of $8.75 during the month of September, when 3,000 atrons were served. Queen Grimhilde, the owner/manager, increased the dinner menu prices by an average of $.50 per item. During the first 30 days of October, 2,900 patrons were served dinner, and the average cover charge was $9.25. Compute the price elasticity of demand.

Answer 1

Answer:

0.583

Explanation:

Data provided in the question;

Average dinner charges = $8.75

Initial demand = 3,000 atrons

Increase in price = $0.50

Final demand = 2,900

Thus,

change in demand = 3,000 - 2,900 = 100

Now,

The price elasticity of demand = $\frac{\textup{Percentage change in demand}}{\textup{Percentage change in price}}$

also,

Percentage change in demand = $\frac{\textup{Change in demand}}{\textup{Initial demand}}\times100\%$

= $\frac{\textup{100}}{\textup{3000}}\times100\%$

= 3.33%

Percentage change in price =  $\frac{\textup{Change in price}}{\textup{Initial price}}\times100\%$

= $\frac{\textup{0.50}}{\textup{8.75}}\times100\%$

= 5.714

thus,

The price elasticity of demand = $\frac{\textup{3.33}\%}{\textup{5.714}\%}$

= 0.583