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ECON 1580-AY2021-T1 - Unit 2 - Written Assignment Submission

The document is a submission for an economics assignment that analyzes the impact of price changes on total revenue for a restaurant. It includes the manager's analysis of reducing the average meal price from $20 to $18, and then further reducing it to $16. For the first reduction, the manager calculates a price elasticity of -1.1, indicating elastic demand, which would cause total revenue to rise from $8,000 to $8,100. For the second reduction, elasticity is calculated as -0.9, showing inelastic demand, so total revenue is expected to fall from $8,100 back to the original level of $8,000. The totals provided at each price point confirm these revenue impacts

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722 views1 page

ECON 1580-AY2021-T1 - Unit 2 - Written Assignment Submission

The document is a submission for an economics assignment that analyzes the impact of price changes on total revenue for a restaurant. It includes the manager's analysis of reducing the average meal price from $20 to $18, and then further reducing it to $16. For the first reduction, the manager calculates a price elasticity of -1.1, indicating elastic demand, which would cause total revenue to rise from $8,000 to $8,100. For the second reduction, elasticity is calculated as -0.9, showing inelastic demand, so total revenue is expected to fall from $8,100 back to the original level of $8,000. The totals provided at each price point confirm these revenue impacts

Uploaded by

Marcus
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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ECON 1580-AY2021-T1_Unit 2_Written Assignment Submission

Suppose you are the manager of a restaurant that serves an average of 400 meals per day at an
average price per meal of $20. On the basis of a survey, you have determined that reducing the
price of an average meal to $18 would increase the quantity demanded to 450 per day.

Question 1:
1. Compute the price elasticity of demand between these two points.

Following the video tutorial on how to compute the price elasticity between two points,
I made my computation came up with –1.1 as my answer

Question 2:
2. Would you expect total revenues to rise or fall? Explain.

As this week’s reading materials and other supporting video tutorials points out that Demand is
indeed elastic. It is therefore from this view that we shall expect an increase in terms of quantity
and reduce in price, eventually increasing the total revenue from $8,000 to $8,100.

Question 3:

3. Suppose you have reduced the average price of a meal to $18 and are considering a further
reduction to $16. Another survey shows that the quantity demanded of meals will increase
from 450 to 500 per day. Compute the price elasticity of demand between these two points.

My Calculation gave me – 0.9 as the answer

Question 4:
4. Would you expect total revenue to rise or fall as a result of this second price reduction?
Explain.

In the reading materials, it was noticed that Demand is inelastic (not elasticated). Therefore,
this will make the total revenue to fall from $8,100 to $8,000.

Question 5:
5. Compute total revenue at the three meal prices. Do these totals confirm your answers in (b)
and (d) above?

According to my observation, yes, they do, in fact it may even rise from $8,000 to $8,100
and falls back to its initial figure of $8,000

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