In this question, assume that all variables other than price and quantity are he

Question

In this question, assume that all variables other than price and quantity are held constant. At Betty's Burgers, the hamburgers have a price elasticity of demand-: 305 and Betty has increased sales by 85.00%. Betty must have Betty must have changed her price by Due to the price change, Betty's total revenue will Patty's Putts increased the price of a round of miniature golf by 76,0%, Patty has calculated her price elasticity of demand at 0.57. She can expect the number of golfers to Patty can expect the number of golfers to change by Patty can expect her total revenue to

Explanation / Answer

Use the following rule for elasticity of demand

Price elasticity of demand ed = % change in Qd or sales / % change in price

Now ed at Betty's is -3.05 and the sales are higher by 85%

1) Betty must have reduced the price (because the demand is elastic and sales are increased. This implies price must have reduced and this will increase her revenue)

2) Price is reduced by

% change in price = % change in Qd or sales/Price elasticity of demand ed = 85%/-3.05 = -27.87%

3) Revenue will rise because the % fall in price is less than % rise in quantity so revenue will increase

4) The number of golfers will decrease (because the demand is inelastic and price is increased so that sales will reduce)

5) It will fall by -0.57*76% = -43.32%

6) Revenue will increase because demand is inelastic and price has increased.

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