Sunday, January 1, 2012

Economic question on elasticity, need some help?

Each Monday a restaurant runs a lunch special on vegetarian laksa. On other days of the week it sells about 250 serves at a price of $7 each during the lunchtime rush. On Mondays, the restaurant lowers its price to $5 and demand proves to be price inelastic (i.e. Ped is less than 1.0). The chef argues that even 250 serves stretches the kitchen beyond its production capacity. She argues that a price rise would ease the pressure on the kitchen and would leave the restaurant better off. Use your understanding of elasticity and revenue to critically examine the chef’s position.

No comments:

Post a Comment