2 A local pizzer ria charges 10 for a medium pizza The owner

2. A local pizzer ria charges $10 for a medium pizza. The owner of the pizzeria wants to increase the company\'s total revenue. A recent market research shows that the price elastici pizza is about 1.5. Should the pizzeria lower or raise the price? Explain your answer ty of demand for his

Solution

The price elasticity of demand in this case is 1.5 and so demand is price elastic as the elasticity is greater than 1. Thus in this case as the elasticity is more than 1, the price needs to be reduced to increase total revenue. So the price needs to come down below $10 to increase the total revenue given that the elasticity is price elastic.