Question

The owner of Bob's Breakfast just bought Nancy's Famous Breakfast across the street. The offer the same breakfast items on the menu. The demand fro Bob's Breakfastis more elastic than Nancy's Famous Breakfast. What should the owner do?
a.Reduce the prices at Nancy's Famous Breakfast
b.Raise the pricesat Bob's Breakfast
c.Raise the prices at both restaurants equally
d.Raise the prices at both restaurants, but raise the price of Bob's Breakfast more

Answer 1

Answer:

d.Raise the prices at both restaurants, but raise the price of Bob's Breakfast more.

Explanation:

Price elasticity is a measure of responsiveness of quantity demanded to changes in price.

When price is inelastic change in price results in small or no change in demand.

When price is elastic a small change causes a large change in demand.

If the owner increases price for Nancy's Famous Breakfast and places a even higher price for Bob's Breakfast, the customers that patronise Bob's Breakfast will reduce. Those that stay will pay higher price.

More people will buy from Nancy's Famous Breakfast also at an increased price.