Note: Please do part 4 and 5 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.Compute the price elasticity of demand between these two points.Would you expect total revenues to rise or fall? Explain.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.Would you expect total revenue to rise or fall as a result of this second price reduction? Explain.Compute total revenue at the three meal prices. Do these totals confirm your answers in (b) and (d) above?

When a firm analyzes the change in its total revenue due to a change in the price level, it…

Answered: Suppose you are the manager of a…

Microeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506893

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter7: Consumer Choice And Elasticity

Section: Chapter Questions

Problem 13CQ: Suppose Erin, the owner-manager of a local hotel projects the following demand for her rooms: a....

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Note: Please do part 4 and 5

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.

Compute the price elasticity of demand between these two points.
Would you expect total revenues to rise or fall? Explain.
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.
Would you expect total revenue to rise or fall as a result of this second price reduction? Explain.
Compute total revenue at the three meal prices. Do these totals confirm your answers in (b) and (d) above?

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