A local pizzeria sells large pizzas at a price of $14 each. The price elasticity of...
A local pizzeria sells large pizzas at a price of $14 each. The price elasticity of demand for its pizza is −0.8. If the pizzeria raises the price of large pizzas by 10%, its total revenue will:
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Remain unchanged |
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Decrease by more than 10% |
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Decrease by less than 10% |
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Increase by less than 10% |
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Increase by more than 10% |
Homework Answers
Answer
Option 4
Increase by less than 10%
Price elasticity of demand =%change in quantity/%change in price
%change in quantity=10*(-0.8)=8%
the price increases by 10% and quantity decrease by 8% so the revenue can increase by a maximum of 2%.
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