Sam owns a taco restaurant,and he conducted a consumer survey that indicates that the price elasticity of demand for his restaurant is 3.5.You would advise Sam to
A)Raise his price to increase revenues.
B)Keep his price the same to maximize revenues.
C)Lower his price to increase revenue.

Question

Quizplus · Accepted Answer

Since the price elasticity of demand is 3.5, it means that a 1% increase in price will result in a 3.5% decrease in quantity demanded. Therefore, if Sam lowers his price, it will result in an increase in quantity demanded, resulting in an increase in revenue. Therefore, it would be advisable for Sam to lower his price to increase revenue.

Sam Owns a Taco Restaurant,and He Conducted a Consumer Survey