Price elasticity of demand
The South Beach Cafe recently reduced appetizer prices from
$12 to $10 for afternoon “early bird” customers and enjoyed a
resulting increase in sales from 90 to 150 orders per day. Beverage sales also
increased from 300 to 600 units per day.
A. Calculate the arc price elasticity of demand for
appetizers.
B. Calculate the arc cross-price elasticity of demand
between beverage sales and appetizer prices.
C. Holding all else equal, would you expect an additional
appetizer price decrease to $8 to cause both appetizer and beverage revenues to
rise? Explain.
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