A local pizzeria sells 500 large pepperoni pizzas per week at a price of $20 each. Suppose the owner of the pizzeria tells you t

Question

3 years ago

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A local pizzeria sells 500 large pepperoni pizzas per week at a price of $20 each. Suppose the owner of the pizzeria tells you t

hat the price elasticity of demand for his pizza is -2, and he asks you for advice. He wants to know two things. First, how many pizzas will he sell if he cuts his price by 10%

Business

1 answer:

n200080 [17] · Answer 1 · 2022-05-07T09:25:20+03:00

Answer:

He will sell 600 pizzas per week if he cuts the price by 10%.

Explanation:

Price Elasticity of demand measure the responsiveness of demand to change in the price of a product. It calculates the ratio of change in demand and change in price.

Price elasticity of demand = % change in demand / % change in price

-2 = % change in demand / 10%

% Change in in demand = -2 x 10%

% Change in in demand = -20%

Following the law of demand as price decreases the demand of the product increases. So the sale of Pizzas will be increased by 20%.

Current Sale of Pizzas = 500 pizzas

Increase in sales = 500 x 20% = 100 pizzas

Increased sale = 500 + 100 = 600 pizzas