Taco Bell. Assume the price elasticity of tacos is 1.13, and the current price i
ID: 1228685 • Letter: T
Question
Taco Bell. Assume the price elasticity of tacos is 1.13, and the current price is $0.99. If we sell an average of 220/day, how will sales change if the prices goes up to $1.09? What will happen to total revenue? Our other product, burritos, has a current price of $1.29 and we sell, on average, 190/day. If we drop the price to $1.19 and then sell 224/day, what can we infer about price elasticity? Compare the price elasticity of both products and recommend a pricing strategy for each.Fast Food. Wendy’s recently changed the price of their classic Single burger from $1.39 to $1.49. Sales went from 497/day to 366/day. Across the street, the Bojangles chicken sandwich maintained its price of $1.99 but sales rose from 172/day to 188/day. What is the cross-price elasticity of burgers with chicken sandwiches? Are these products complements or substitutes and how do you know?
Explanation / Answer
Taco Bell 1. since tacos is elastic, if the price goes up we will buy less tacos and total revenue will fall. 2. Based on the given information we can infer buritos are elastic since we dropped the price and people consumed more. 3. Since both goods are elastic, the best bet would be to reduce the price on both items and the quantity demanded for both items will rise resulting in a larger total revenue. Fast food In this case, these goods are perfect substitutes and the cross price elasticity is the change in quantity/change in price of one good multiplied by price/quantity of the other good (131/-.1)*(1.99/188)=-13.86 Hope this helps
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