Question

All questions must be answered in details ELASTICITY 4. Jumping Joe’s Night Club has found that when they offer half price admission to the club on Wednesday nights (when business is typically slow), their total revenue rises. (a) Is their demand elastic? Explain. (b) Is it a good idea for them to continue with this promotion? Why? 7. The elasticity of demand for Dave’s Famous is Pizza is 2.6. Dave is considering raising pizza prices by 20%. Is this a good idea? What will happen to his sales? His total revenue? Explain.

Answer 1

Ans. 4 a) Yes, demand is elastic. As we know that demand is elastic when the percentage change( increase/ decrease) in price leads to more change( decrease/ increase) in the quantity demand.

when they offer half price for admission to the club, more people prefer to come to the club ( because of fewer people prefer to come on Wednesday and that leads to slow business) and help in the rise their total revenue.

b) It is a good idea for them to continue with this promotion because it generates more revenue for them on a slow business day and it may be people prefer to come more there on other days also.

Ans.7 The elasticity of demand for Dave's famous pizza is 2.6 that means when the price of pizza changes (increase/decrease) by 1%, quantity demand for pizza changes ( decrease/increase) by more than that 2.6 % i.e. high elastic demand for Dave's Pizza. People have high Preference for Dave's pizza

It wouldn't be a good idea to raise the price by 20% cause that leads to more decrease in the demand for Dave's famous pizza and it will lead to falling in sales and total revenue because of high elasticity for dave's famous pizza ( a negative relationship between the price of pizza and quantity demanded )