If the price elasticity of demand for Baja Fresh tacos is 2.5,then Baja Fresh can:
A) Reduce the price of tacos by 25 percent and total revenue will remain the same.
B) Raise the price of tacos and total revenue will increase.
C) Reduce the price of tacos by less than 25 percent and total sales will remain the same.
D) Reduce the price of tacos and total revenue will increase.

Question

Quizplus · Accepted Answer

If the price elasticity of demand for Baja Fresh tacos is 2.5, then a 1% decrease in price will lead to a 2.5% increase in the quantity demanded. Therefore, if Baja Fresh reduces the price of its tacos, the quantity demanded will increase by a larger percentage than the percentage decrease in price, leading to an increase in total revenue. This is because the revenue gained from the increased quantity demanded will offset the revenue lost from the lower price, resulting in an overall increase in revenue. Therefore, Baja Fresh can reduce the price of tacos and total revenue will increase, making choice D the best answer.

If the Price Elasticity of Demand for Baja Fresh Tacos